Government Regulation and Free Market Alternatives

Column by Robert Taylor.

Exclusive to STR

The failure of the state to adequately provide the services that are supposedly the sole domain of government is everywhere evident and an unfortunate fixture of American life. Instead of creating order, it has imposed chaos, cages, and climbing crime rates. While piling up bodies in the name of peace, it had made all of us less safe. But it is in one crucial, yet often overlooked, aspect of society that government really has failed: the coordination of economic activity through "regulations."

It should come as no surprise to see that government regulation, posing itself as the protector of the little guy and the public interest, has the exact opposite results. Regulation that is backed by the coercive power of the state is almost always used to forcibly prevent competition in the marketplace, cartelizes industries by making it harder and harder for smaller businesses to enter a field, and is often lobbied for by large corporate interests as a nearly cost-free way to avoid the discipline and constantly changing climate of the free market.

Nowhere is this more evident than the heavily regulated taxi industry. The cost of permission from those calling themselves "the state" to drive a cab in New York City can cost more than $603,000. In Chicago, it's $56,000. Boston, $285,000. Philadelphia $75,000. These fees, which can only be described as extortion rackets, discriminate against anyone who lacks tens and hundreds of thousands of dollars. In other words, smaller and potential competitors to the government taxi cartels. All for the "privilege" of exercising a natural right: using your property as you see fit.

Unfortunately, when discussing the issue of government regulation, most arguments in favor of gun-run regulation commit the classic fallacy of conflating society with government.  Just because one is opposed to government regulation, does not mean that one opposes regulation per se. I see it is absolutely vital, which is why something so important has no business being under the control of a violent monopoly.

Regulation of economic activity is not something than can or should be imposed from the top-down, a one-size-fits-all approach. Without the state in charge, the market takes over and provides competitive regulations and standards without the use of force. Just look at Consumer Reports, Regulation Magazine, Amazon/eBay buyer and seller ratings, third-party certifications, etc.

And like all government interventions, there is always a "moral hazard,” influencing people’s actions in ways that are largely--at least in the immediate term--unseen. It is astonishing to me how much time people spend analyzing what TV to buy, which Internet company to use, which car to purchase, or which cell-phone plan to subscribe to (which they should). These industries, at least compared to the rest of the economy, are run and regulated by the market. But when government is in charge of "regulation" and "protection," there exists a mentality that perceives safety in products because, well, the gummint's in charge, and they work for the public interest, right? Tell that to the victims of one of the leading killers in America: FDA-approved drugs.

When it comes to any issue that faces society, especially one as important as regulation, the answer really boils down to not who will help solve it, but how? "The state" and "the market" are just abstractions for people, and the pro-liberty position says that people engaging in non-violent means of interaction--persuasion, ostracism, voluntary exchange, commerce, charity--is the only ethical way for society to tackle problems. The statist solution says that a certain group of people with the power to initiate force on other people will address the problem.

But this initiated aggression is not only immoral, it tends to keep things in a state of molasses. Products don't improve. Prices either stay the same or don't fall, making it harder and harder for people to advance their lives. While Americans were beginning to expand on the concept of the Internet, cell phones, and enjoying the luxuries of capitalism like indoor heating, plumbing, and household appliances, Soviet teenagers would've given a leg just to fit their other one in a pair of Levi’s.

Here's a quick thought experiment: let's just say that in the 1980s, the U.S. government decided that the brand new VCR player was a "human right" guaranteed to everybody. VCRs back then cost what, like, $500? It is simply unfair that only those who are well off can purchase VCRs. Government must intervene to subsidize them or provide them free to the poor. Otherwise, the poor would never be able to record their favorite shows!

Well can you imagine what would've happened to the tech industry, let alone the price of a VCR, if such a program were to be implented? We tend to take for granted to the fruits of the market when we stroll through a Best Buy, but it is to our economic and philosophical peril that we do.

It's simple, really: take the bayonet out of the room. Once the initiation of force is removed from societal interaction, there becomes an infinite amount of ways that a service can be provided in the marketplace. Either people care about the quality of their food and the safety of the workplace, or they don't. If they do, then the market will come up with a myriad of ways to provide this as best as possible. If they don't, then no amount of decrees, legislation, or outright force can change people's minds.

After all, if someone has to persuade, not force, you to buy their car, hire their protection services, or use their private court, then they will be tripping all over themselves to explain to you why you won't be harmed or screwed over by their services. They would also provide you compensation if they failed to fulfill these promises.

Why? Because of competition, reputation, and the profit/loss mechanism. As Mises said, in the free market, the customer is king.

And when it comes to something so valuable, so important, so essential as regulation in a world full of untrustworthy people, crooks, and liars, applying the peaceful principles of the marketplace is the only way that this can possibly be achieved.

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Westernerd's picture
Columns on STR: 7

lives in San Francisco, California. He spends his time reading voraciously, ranting, and advocating the virtues of economic and political freedom. He has written for multiple websites and hopes to play a small part in bringing a voluntary market society into fruition. He enjoys billiards, whiskey, and sabermetrics. He blogs at A Little Rebellion.