Wednesday, February 17, 2010

The Myth of Deregulation

It is not uncommon for the enemies of capitalism to throw out a flurry of "facts" that demonstrate the alleged shortcomings of the free market. Taken out of context, these claims might appear to be true. For example, it has become a mantra of the Left to claim that the Bush Administration engaged in reckless deregulation, which ultimately caused a whole host of problems, from destruction of the environment to the financial collapse.

Leftists can certainly point to irresponsible behavior on the part of many executives at financial institutions--behavior that might seem to bolster claims that more regulation is required to prevent another financial meltdown. While we can bring the broader context to bear--the fact that financial institutions are and were among the most heavily regulated in the nation--how do we refute the specific claim that deregulation caused the financial collapse?

Fortunately, Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University has provided us some specifics that completely destroy such claims. She is cited in an article on Real Clear Politics:

"Between fiscal year 2001 and fiscal year 2009," she writes, "outlays on regulatory activities, adjusted for inflation, increased from $26.4 billion to an estimated $42.7 billion, or 62 percent. By contrast, President Clinton increased real spending on regulatory activities by 31 percent, from $20.1 billion in 1993 to $26.4 billion in 2001."

De Rugy also points out that, adjusted for inflation, regulatory spending under the category of finance and banking were cut by 3 percent during the Bill Clinton years and rose 29 percent under the imagined Bush deregulation binge.

In short, not only was there no massive deregulation under Bush, regulations were expanded dramatically. Allegations of deregulation are a complete myth.

But the actual facts haven't stopped politicians and pundits from demanding more government control. It would be easy to blame incompetence for their misguided demands, for we certainly have abundant evidence--both theoretical and practical--of their incompetence. The truth however, is far more ominous.

The very nature of regulations force individuals to act contrary to their own judgment. Some regulations prohibit actions that regulators deem harmful. Other regulations encourage actions that regulators deem beneficial. Either way, regulators compel individuals to act as they--the regulators--desire.

The results are predictable. Regulations establish a clash of values. The goals of regulators necessarily conflict with those they are regulating, which is precisely why regulations must be enforced at the point of a gun. Certainly there are some in the regulated industry who view regulations as beneficial, but any short-term gains will ultimately be wiped out. Witness the collapse of AIG and other financial giants.

Having abandoned principles, government officials cannot see this connection. They can only look at the moment, and when they do not like what they see, declare that action is necessary. And the action that they invariably propose involves more coercion.

This of course, is their goal. Government officials want more power, and ultimately absolute power. They do not want individuals acting by their own choice in the pursuit of their own values. Today they create myths for the purpose of winning public support for their power grab. And when they are successful, they won't need public support, for they will have the means to demand obedience, or else. Sadly, they are well on their way.


Mr. Moderate said...

There are some regulations that are good. The ones that prevent companies from harming others. For example, the regulations that limit how much particulate mater a facility can emit, or the ones that govern what level of toxic waste can enter the environment. I know your preference is for those affected by anothers actions to use the courts, but I prefer to prevent the harm, not sue after my child has died, although my grief might be reduced by the power to kill the head of the entity that caused the harm.

I would be happier if more regulations were aimed at increasing transparency and disclosure, and providing a framework for operation, rather than prescribing specific actions in specific situations.

Brian Phillips said...

Actually, you misunderstand my position. Actions that pose an objective and demonstrable threat to the property of others should not be permitted. A large part of the problem is that much of our land and water is "publicly" owned, and subject to the tragedy of the commons.

If all property were privately owned, you could not pollute my water or land. Air is a little more complex, but the same principle applies--you can't spec chemicals that will come onto my property and pose a threat to my well being.

We don't need regulations to accomplish such protections. We need a complete and consistent understanding and application of property rights.