My first post this week led to some interesting discussion in the comments, which has in turn led me to this post.  One issue that came up there was, and I paraphrase: “Okay, fine, markets really do benefit the poor, but the dispute between modern liberals and libertarians is not over ‘markets’ but over ‘free markets.’  Libertarians don’t want the regulations that liberals do and saying that ‘markets’ help the poor doesn’t help us resolve this issue.”  Fair enough.  So why might libertarians, and bleeding heart ones at that, argue that markets should be free of government regulations?

The short answer, which I will assert here and defend below, is that whatever the intent behind government regulation of markets, it almost always ends up working in the interest of the rich and powerful and does little to protect the interest of those with modest means and little access to power.  If a commitment to social justice demands that we care first and foremost about the least well off among us, supporting government regulation may well violate that commitment.

The problems begin when people underestimate the task facing regulators.  As Mises, Hayek, and other Austrian-influenced economists have pointed out, markets are very sophisticated epistemological ecosystems.  As Hayek made clear 66 years ago, the problem we face when try to “construct” an economic order is how to best make use of all of this knowledge, which is dispersed, contextual, and often tacit.  His answer was that the price system enables us to make use of the knowledge possessed by others, even when those others cannot articulate or put into statistics exactly what it is that they know.  Our acts of buying and selling cause prices to change and enable those prices to serve as surrogates for the underlying knowledge.  Without directly accessing others’ minds, we are able to have some knowledge about what they value that, in turn, enables us to allocate resources in ways that match those valuations.

Mises and Hayek also argued that because this knowledge is structurally dispersed, contextual and tacit, it cannot be aggregated by government planners and regulators (nor, it’s worth noting, by private actors).  The only way to make this knowledge available to others is in surrogate form through the price system.  This, they argued, is why attempts at planning economies (such as socialism) are doomed to fail:  the planners cannot make use of anywhere near as much knowledge as the price system allows people to make use of.  The result is that it is only the limited knowledge of the regulators that dominates, not the wisdom of crowds that emerges from free markets. Without a price system we are blind;  when we regulate markets, we are vision impaired.

So one problem facing regulators is that they lack the knowledge necessary to know what people value and how much, so in deciding what to regulate and how, they are acting on incomplete and often erroneous information.  By trying to override the market, they are substituting a less informationally-rich system for a more rich one.

Even well-intentioned regulators will face these problems, often not just not solving the problem they are working on but creating more in the process.  In the face of these repeated failures, it’s very easy to imagine, and there’s plenty of evidence to support it, that regulators and the politicians who oversee them will start to act in their own political self-interest.  Without the ability to make reliable decisions on the objective merits, self-interest will slowly dominate.  Regulators will try to serve the needs of those who will keep them in power and supply them with healthy budgets.  So-called “Capture Theory” explains that it then becomes easy for regulators to be “captured” by the industries they regulate and then regulate in ways that favor the industry.

Of course once the power to regulate is granted, those directly affected by possible regulations will use their wealth and power to lobby the political process to intervene in ways that benefit them.  For example, about 75% of antitrust cases are initiated not by the government but by private firms unhappy with how their competition has behaved.  Private actors constantly engage in lobbying and rent-seeking for regulations that will benefit them and/or harm their competition.

Those who stand to gain concentrated benefits from regulation, such as firms, will lobby to get regulations that benefit them, while the costs are dispersed across hundreds of millions of us, none of whom have any incentive to object, nor the resources or power to affect the outcome.  As markets get increasingly politicized, it will be those with the best access to the political process who will call the tune and benefit from the regulatory process.  They, suffice it to say, will not be those who are the primary concern of people focused on social justice.

Specific regulations, of course, will have a variety of problematic effects,  often landing on the shoulders of the least advantaged, e.g., the ways in which minimum wage laws worsen unemployment among the least skilled workers, usually the young and non-white.  For me, as an economist, the argument against a great deal of regulation is precisely that it harms the least well off it is trying to help and provides unwarranted privileges for those who need them least.  There is plenty of historical evidence of the role of big business in lobbying for and helping to write a whole variety of regulations.  As I’ve argued elsewhere, this is a feature of the mixed economy, not a bug.  My First Law of Political Economy is “No one hates capitalism more than capitalists,” and the mixed economy is not accidentally rigged to benefit the powerful.  That is why it’s there in the first place.

As long as the state regulates, the possibility of private profits will lure with those with power and resources into that game and it’s a game they will inevitably win.  And the losers will be those without the power and resources.  Free markets don’t give us utopia, but I really do believe they do better by the poor than do regulated markets for the reasons I’ve outlined.

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  • M vR

    So it looks like the argument will have to be that the better off will be more apt to get what favors them but not the less well off on important issues than the less well off (but probably more numerous) will be to get what favors them on important issues.  At that level of abstraction it is very hard for me to see why this would be inevitable.

    And I wonder about the following: The only bar to regulations that favor one group over the other will have to be some sort of politically stable meta-regulation.  So why think that the arguments that show that the more advantaged will get their way with respect to more specific regulations won’t also show that any actual meta-regulation (limiting the kinds of market regulation that will be permitted) won’t also be biased to favor the better off?

    Myself I’m happier to fight issues of regulation on the merits with the hope that there are at least feedback loops that will help correct especially bad regulations.  Not all regulatory issues are well off vs. worse off, and those might well be apt to be enacted.  And, given the numbers of less well off and the not entirely ill-interested nature of at least some of the better off it isn’t obvious that decent regulations favoring the less well off might have some chance as well.

    Mark van Roojen (since this thing signs me in with initials)

    • http://www.sandiego.edu/~mzwolinski Matt Zwolinski

      Hey Mark,

      If you want it to display your real name, you could do the following.

      When you type your comment, click the “post as” button on the bottom right, and select “Disqus” from the pop up window.  Disqus is the name of the commenting software we’re using.  Then select “register for a Disqus account.”  Once you’ve done that, you can set you display name to whatever you want.  

      Kind of a pain, I know, but it keeps the spam-bots away.

      -matt

    • Dave Lynch

      The prime beneficiaries of free markets are those at the bottom of the pyramid – not those better off. The rich typically are in the privileged position of early adopters – they pay far more for inferior goods for that privilege. But the rich are the smallest and therefore least attractive market.

      The influence of the rich on the marketplace as a whole is insignificant.  Walmart is far larger than tiffany. There will always be some portion of the market that caters to the needs of narrow market segments, whether the need is for diamond encrusted dog collars or bling.

      The significant point at which influence becomes disparate is government. Eliminate regulation and you eliminate the disparity.

       

      • Damien S.

        *Competitive* markets in goods can help the poor.  (Competitive market in labor, maybe not.)  Totally “free” markets don’t stay competitive.  And I laugh at your taking Tiffany as the representative of wealth concentration.

      • Bongstar420

        People sell on black markets because they aren’t good enough to survive on a regulate market which imposes higher requirements.

        With Cannabis, most growers can’t survive on legal Cannabis because netting $100 on the black market is exactly the same as netting $40 legally. The person on the black market benefits from society without paying into the community chest. Most “free marketeers” think they do not benefit from organized civilization.

        I think they should be eating the meat from the free market that existed in the US before the USDA (rich people wern’t eating it btw).

        • John Say

          What is a”black market” ?

          people exchange this with each other all the time.
          Why is some exchange “black” and some not ?

          If I sell you something or you sell me something, what has that got to do with some “community chest” ? And why are other of us “paying into” it ?

          The social contract is the protection of government of all of our natural rights – save that of initiating violence against others, in return for protection from violence initiated by others.
          The “benefit” of organized civilization is the protection of our rights as well as being made whole if we or our property are harmed. More than that is at the expense of our liberty. 9 people can not agree to sacrifice the liberty of a tenth. What you call benefits are harms.

          a “Regulated market” is redundant – markets self regulate.
          They go off the rails when government tries to dick arround with them.

          The recent housing bust and financial crisis is one example. But look at every purported market failure since the Dutch Tulip craze and you will find government malfeasance.

          Most of the people in the world eat foods that have no FDA approval – including from countries with life expectance greater than ours.

          Why would you think that the rich or big business would like a free market? Take note of the number of rich people and big businesses entwined in government.
          Regulation has another name – “barriers to entry”.

          The closest thing to an oligarchy in the real world is our current corporatist big government mess.

          You have been living in an echo chamber too long.

  • http://twitter.com/DanMKervick Dan Kervick

    Do any of the bleeding heart libertarians ever read any economists besides Hayek and Mises?   There really has been a lot of critical water under the bridge since those guys, both at the theoretical level and the empirical level.  If you are going to keep appealing to them as authorities and regurgitating their arguments without emendation, you might at least want to defend them against their many critics in the economics profession.

    Fundamentally, economics is an empirical science that purports to make claims about the nature and consequences of various kinds of human behavior.  Its various theoretical manifestations are articulated with a philosophical component.  But it is not philosophy.  When this blog started, I was expecting there to be more of a mix of both economic and philosophical research, since libertarianism draws its its intellectual lifeblood from both fields.  But to date, if I am right, there has not been a single fair-minded examination of an ongoing empirical dispute – you know, with numbers and data and stuff.

    • Anonymous

      Data and stuff are historical phenomena, unique events specific to a particular time, place and circumstance. As such they are useless for revealing economic laws. Economics is not an empirical science. How would it even be possible to create an experiment when no behavior constants exist?   

      What emendations are required in your mind?  What is it about the apriorism in Austrian econ that you think is unreasonable or unscientific?  e.g. Who has refuted Mises re the calculation argument? How did they do it?

      • http://twitter.com/DanMKervick Dan Kervick

        Data and stuff are historical phenomena, unique events specific to a particular time, place and circumstance. As such they are useless for revealing economic laws.

        Would you also say that the particular phenomena studied in the laboratories and observed through the instruments of other sciences are also useless for revealing the laws of those sciences?  I thought that people realized, at least since the time of Boyle, Hooke and Newton, that we discover laws, if laws there be, only by the observational testing of conjectures suggested from observation of the phenomena.

        If there are behavioral constants, then you only discover them by experiment and observation.   Similarly, the ways in which patterns of global phenomena supervene on micro-level phenomena can only be answered empirically.

        By the way, how do we know there are any economic “laws”?    Economic science deals with a realm of inherently complex and higher-level phenomena.  Even if there are laws in fundamental physics – and even that view has been challenged – what confidence should we have that there are fundamental laws of economics.  Maybe each economic phenomenon can only be understood on the basis of analogies and similarities to other economic phenomena to which it bears a partial resemblance, but there are no laws underpinning the all of this phenomena.

        • http://www.facebook.com/L.Paul.Strait Paul Strait

          It is telling that you try to prove this argument by analogizing to the natural sciences.  Reflexivity.

          • http://twitter.com/UserGoogol UserGoogol

            Analogy? Human beings are just another part of nature. Human society is certainly a highly complicated and chaotic system, but we’re hardly unique in this; nobody says we should apply Praxeology to meteorology.

          • John Say

            Nor can you conduct controlled meteorological experiments.

          • http://twitter.com/DanMKervick Dan Kervick

            I pointed out both  potential analogies (based on empirical observation) and disanalogies (too high level to yield laws) with the natural sciences.  Do you also think it is an a priori science, more analogous to mathematics than the natural sciences?  Or do you think it is no science at all?   Are you denying the role of empirical observation?   How is it that you think economics is capable of providing guidance about the likely outcomes of our actions?  Surely both libertarians and non-libertarians draw on it for such guidance.

            If you mean “reflexivity” in something like Soros’s sense, then I agree with you.  Prevailing patterns of economic activity are guided by mental models of the way the world works, but the agents in the system frequently modify their behavior in innovative ways, and in response to feedback.  Over time, some important prevailing patterns are extinguished and new ones emerge.  Economic systems are inherent unstable, dynamically evolving things.   In studying them, we are always studying a moving target.  To my mind, that makes equilibrium models less generally applicable than is often held to be the case.

            Even if there are fundamental laws of economics, the interventions of regulatory agents are not designed to effect changes on the fundamental micro-level.  They are designed to effect changes in contingent higher level patterns.

          • William Schudlich

            Even if there are fundamental laws of economics, the interventions of
            regulatory agents are not designed to effect changes on the fundamental
            micro-level.

            And yet, they do. Once a regulation is put in place, individual actors will incorporate it into their knowledge base. The overall fabric of society has thus been changed. We can’t say to what extent, and in what time frame things will happen, but everything has changed, and not necessarily in the intended way.

          • http://twitter.com/DanMKervick Dan Kervick

            Not necessarily in the intended way, but frequently in the intended way.  Governments have plenty of experience, for example, in implementing different kinds of taxes and observing the results.  I think libertarians are too disposed to believe that macro-level human behavior is a bottomless epistemic pit of darkness and ignorance, and no government has ever gotten what they are after when they have attempted economic management.

          • John Say

            Depends on who’s intent.
            Regulatory capture is a well know phenomena.
            Even at the legislative level laws are almost never drafted to accomplish their avowed purpose.

            Does government fail always ? Do negative unintended consequences always dwarf the intended ones ?
            Of course not. Every throw of the die could come up snake eyes. Once in a while government succeeds.
            Once in a while it fails abysmally. Most of the time it merely does worse than had nothing been done at all. But rarely so badly as to drive revolt.

            Further as the complexity of the economy and as the governments intrusions into it grow, the odds of failure increase.

            Adam Smith grasped the likely failure of government action over 200 years ago, in an economy far far more manageable that that today. While we understand more today than two centuries ago, we are actually farther from being able to grasp an increasingly complex whole well enough to manage it

          • John Say

            empiracal obervation is a tool, not the only available tool.
            It works better in some instances and less well in others.
            even within a single science, it is sometimes applicable, and sometimes not. Nor is its aplicability uniform accross all sciences.

        • Anonymous

          Humans are not mere physical things. It’s a creature with a mind and subjective values that makes choices. Hence, the kind of deterministic reasoning that works so well in the lab– a place where change may be relatively isolated and repeated, cannot be done with humans. How do you hold the human mind as a constant when the introspective assumption must be that change is? In this sense, it is economics that provides man with understanding concerning areas where the natural sciences cannot reach. Even then, part of this economic knowledge relates the fact there is a point in analyzing past human actions at which no certainty can be had. Omniscience is not a human trait.

          Now, it could be true that the aprioristic, post-Kantian introspective deductive method is not quite right. Maybe the concept of the self-intentional individual will be refuted by the natural sciences 2000 years from now. I don’t know.

          But for now, it must be said that economics is not about statistics, goods and services– but about human action. It’s about individual choice, using means to attain ends. And in this regard it can also be deduced that what holds true at the micro level must also hold true at the macro level. This attempt to make aggregations seem as though they are on a different logical plain is spurious. Only individuals act.

          You ask if there should be any confidence in economic law. I agree that skepticism about all things is healthy and reasonable. But even in skepticism there is an assumption that the human mind has a logical structure and is able to perceive reality and recognize that reality is rule based. Likewise, the validity of an apriori statement like “Humans act purposively” is merely expressing a component of reality, or a law of reality if you will. In this sense it is not a question of whether it works– which goes so far in showing the value in math, another aprioristic deductive science. You can see engineering feats and relate it directly to math.  It makes confidence in math really easy.

          Admittedly, I don’t know much about the world, though.   

          • http://twitter.com/DanMKervick Dan Kervick

            I’m not sure what you’re saying.  It seemed at first that you were saying that human beings possess a kind of freedom that places human behavior beyond the reach of science.  But then you seemed to be saying that human behavior is actually the object of some kind of a priori, deductive science, in which macro level laws can be deduced from micro level laws.

          • Anonymous

            Beyond the reach of lab science and induction.  Given that the basic aprioristic statements refer to realities, categories of action like indirect exchange and the market, which are derived from these axioms, I refer to Austrian economics as a science. Does it not explain something about the world meaningfully?

            Micro vs. macro is a false dichotomy to the extent that there is any contradiction. 

          • http://twitter.com/DanMKervick Dan Kervick

            OK, so you think Austrian economics is a science that describes actual behavior in the actual world, but is also a priori?   It’s a synthetic a priori science?

          • Anonymous

            I do believe synthetic apriori is the term. But it does not describe actual behavior but the necessary universal characteristics of all behavior- and their logical implications. An example would be motivation. Austrians assume action is motivated; but there is no apriori assumption about what particular motivation was at play in a particular act. There is no psychology or mind reading at the core axiom level. It has to be without contradiction or nebulousness for it to be valid, right?

          • http://twitter.com/DanMKervick Dan Kervick

            Well, if there are indeed any knowable, non-tautologous necessary truths about behavior -which I doubt, by the way – you can get an a priori science out of those truths.   But it is hard for me to see that you would get anything approximating economics, which Austrians and their opponents alike typically regard as making abundant substantive claims about the consequences of actual behavior.

          • Anonymous

            Example. If there was ten dollars circulating in a given community and then someone got away with counterfeiting a few more you would claim that it is only hypothetical that ceteris paribus, the purchasing power of money has decreased? 

          • http://twitter.com/DanMKervick Dan Kervick

            Of course.  The value in exchange power of any kinds of things in exchange always depends on contingent human desires and dispositions, not just the quantities of the things in existence.  To the extent that there are regularities in the way fluctuations in quantities of things possessed results in corresponding fluctuations in price ratios over the same period of time, that is only because human desires  in the community in question remain constant over that same period of time.  And surely the stability of human desires over any given period of time is not a necessary truth, but a contingent one.

          • John Say

            Reread yourself, you are becoming austrian.
            Rather than arguing from behavior to rules you have argued from values to behavior.

          • John Say

            Austrian economics is one means of studying human behavior. It does not have biblical authority.
            Other forms of economics make their own contributions.
            But all do not contribute equally, nor do all apply equally to the same things.

            Empiracal methods are well suited to many things, and poorly suited to others. The greatest fault of empiracists is their beleif that they can answer all questions.

          • John Say

            Why can’t both be true ?
            Behaviorism failed. Humans are far too complex to be treated as computers predictably processing programs.
            At the same time while we can not precisely predict the specific behavior of any individual confronted with a given choice, we can with reason predict average behavior – some of the time.

          • Bongstar420

            So part of a human isn’t consisted of anything? After all, sound and photons are physical things. Empty space is a physical thing. Subjectivity is 100% physical and the result of actual things.

            Semantics

        • John Say

          What are the laws of sociology, or psychology ?
          Even anthropology ?
          What if the constants you seek do not exist ?
          All “science” is not the same, nor is it all empircal.
          For an extremely large portion the scientific method does not apply, we rarely have controlled experiments in economics, sociology, anthropology.
          In many aspects of many sciences, at best we can attempt to extrapolate from observation, but we have limited ability to experiment.

          What confidence can we have in the laws of economics – about as much as the theory of evolution, or the big bang theory, or sociology, or anthropology, or meteorology ?

          The same a any other science unable to conduct controlled experiments, or any other science rooted in human behavior.

          From that we should also grasp that numerical methods will only get us so far. That often we may do better trying to theorize based on our understanding of humans and philosophy and then validate that thesis by comparing to the real world rather than trying to understand humans behavior solely by number crunching human actions.

          With 7B people interacting hundreds and thousands of times a day, trying to develop economic laws by number crunching infinite actions, may be impossible. But positing laws and then testing if they conform to reality is much easier.

    • http://www.facebook.com/L.Paul.Strait Paul Strait

      The austrians dispute that it is an empirical science.  

      • http://twitter.com/DanMKervick Dan Kervick

        Oh good.  So maybe Austrians will stop making predictions about the harmful effects of proposed progressive legislation?

        • Steven Horwitz

           Let me note that as an Austrian economist I reject Paul’s characterization of economics.  There is most certainly a role for empirical evidence in economics.

          For Dan, I would just add that there’s a difference between making point predictions about specific data and what Hayek called “pattern predictions” about the likely consequences of particular actions or regulations.

          • http://twitter.com/DanMKervick Dan Kervick

            That’s a fair point.  I would just say that whether successful predictions are possible in a given realm of phenomena is itself an empirical question.   I suspect even the most libertarian among you will admit that there are certain phenomena in the realm of human social behavior, including the likely aggregate outcomes of certain kinds of regulations and ordinances, that can be predicted with a reasonably high-degree of confidence – not with certainty, but a high degree of confidence. 

            Some of the commenters so far seem to have just dealt, implicitly, with only a certain form of regulation: an economically totalitarian central plan that attempts to set prices and production quotas throughout the economy.   That might be a worthwhile target for someone in Hayek’s time. But since progressive economic legislation in the present time, actual and proposed, has no such ambitions, I’m not sure spending so much time on that point is the best way to engage with the real political debates of our time.

            Here’s one particular human phenomenon that I personally think has been amply demonstrated time and again throughout history, and again in our own time:  People have a demonstrated tendency toward over-enthusiasm, dishonesty and  impulsiveness in both their borrowing behavior and lending behavior, and left to their own devices generate wild swings of credit expansion binges followed by painful credit contractions that lends to a very  improvident type of instability.   Thus, a wisely self-governed community uses Odysseus-like foresight and enacts regulations that tie their members to the mast through law, so that they don’t behave stupidly or recklessly when temptation arises, and that act as a stabilizing rudder that helps keep the ship of capital on a reasonably stable course toward the fulfillment of public purpose.

            Of course, I know libertarians don’t like laws against drug use and trafficking either.  So I guess I can’t expect them to get worked up over the meth of unbridled credit.

            I also know that whenever someone like me points to what appears to be some deleterious pattern generated repeatedly by the inherent limits of human intelligence, emotional stability and prudence, or by some easily identifiable ways in which private vices do not engender public benefits, the libertarians immediately start claiming that the problem isn’t with individual people, but with states.  To my mind, many of these ad hoc explainings-away of bad outcomes of human behavior, always passing the buck to the influence of the omnipresent state, are like a secular version “the devil made me do it”.

          • Anonymous

            Austrians cover limited state interventions extensively. That is what regulation is, right?  Even in the instance of regulatory authority the calculation argument applies. A government bureaucracy is economically irrational because its budget is via taxation, a sure way to destroy the means by which to estimate and socially account for the opportunity costs of its own existence. 

        • John Say

          Why does something have to be empiracal to be predictable ?

    • Steven Horwitz

      Apparently you missed my first post this week which was full of “numbers and data and stuff.”

      And yes, I read lots of other economists, but for this particular point, it is the Austrian tradition that makes the point  best and most clearly, and is, frankly, often misunderstood by other economists, not to mention often unknown by philosophers.

      So scroll back and check out my first post this week. 

    • Anonymous

      Are there a couple of specifics you’re thinking of here?  Are you talking about things like Real Business Cycle theory versus Austrian Business Cycle theory or even more broadly various monetary theories? Are you thinking of things like the (I’m forgetting the name it went by – maybe Theory of Second Best or something) the welfare economics theory that suggests if one market is out of equilibrium interventions in other markets can move the general economy towards a “better” state? Or are you thinking of some types of methodological aspects?

    • Anonymous

      Dan, 

      I assume you are most focused on the technocratic debates on the efficacy of regulation, a la Cass Sunstein and countless others, who are able to show that some regulation clearly is a net benefit.

      If so, that literature neglects two major aspects of empirical reality:

      1.  The fact that the developing world is massively over-regulated:  If you are familiar with Hernando de Soto’s “Mystery of Capital” or the World Bank’s Doing Business index, then presumably you are aware that in almost low and most middle income nations it is almost impossible for a poor or working class person to create a legal business.  Presumably you are aware that on economic freedom indices, Denmark is more free than the entire developing world:  It is easier to start a legal business or to fire an employee in Denmark than in any developing nation.  Presumably you are familiar with the correlations between economic freedom and prosperity, and between increased economic freedom and increased levels of economic growth.  Collectively, this literature is an absolutely damning condemnation of the role of government, on a global basis, in alleviating poverty.  See Chapter 9 of “Be the Solution:  How Entrepreneurs and Conscious Capitalists Can Solve All the World’s Problems” for more.  This particular argument does not justify Horwitz’s position above, but it is striking that libertarians seem to be the only group arguing for greater economic freedom in the developing world.  How do you explain progressivism’s extraordinary blindness to the crime of excessive developing world regulation?  Eighteen procedures to import a good into the Congo is simply inexcusable, as is almost every other bureaucratic obstacle to doing business documented by the Doing Business index.

      2.  The empirical literature you mention, if we are referring to the same literature, also tends to neglect the positive impact of innovation given freedom.  This is, strictly speaking, an immeasurable counterfactual:  How do we know what innovations would have taken place had certain regulations not existed, and how do we know whether or not they would have had a significant positive impact on the lives of the poor?   That said, we do know that whenever the thousands of entrepreneurs have been free to discover new and better ways of doing things that the result has been lower cost and higher quality for all.  The price of cotton dropped one hundred-fold between 1770 and 1870, the cost of transportation, communications, entertainment, household labor-savings devices, and countless other goods have seen similar trends of dramatic cost reduction and quality improvement.  Cox and Alms “Myths of Rich and Poor” have countless recent examples.  French regulators did not want to legalize EBay because in France auctioneers were required to have a license – how much as EBay democratized global markets, allowing millions of people, often of modest means, to earn an additional income – suppose EBay had been illegal globally?  Some believe that these trends would not apply to education and health care, but some of those with actual experience innovating in education and health care think otherwise; see my “The Creation of Conscious Culture through Educational Innovation” for a sketch of part of this argument,

      http://changethis.com/manifesto/show/38.03.EdInnovation

      The left-libertarian Kevin Carson, who actually works in the health care industry in his day job, documents countless ways in which excessive regulation makes health care unnecessarily expensive and less effective than it could be at producing health,

      http://c4ss.org/content/2088

      In short, if you (or any progressive or left-liberal) could guarantee somehow that only Cass Sunstein net positive regulations would be the result of government regulation (with full awareness of public choice theory and evidence); and if it were the case that progressives and left-liberals were just as passionate about increasing developing world economic freedom as are libertarians; and if regulation did not prevent major gains in human well-being through innovation from occurring, then I might begin once again to take the progressive or left-liberal world view seriously again.  Until you (or some other progressive or left-liberal) does so, I’ll continue to side with Horwitz and regard libertarians as superior on Rawlsian moral grounds to progressives.

    • Bongstar420

      Economics is not empirical in the laboratory sense. It has a huge amount of subjectivity because it is entirely the projection of the human mind. People aren’t even capable of being “objective” despite Rosenbaum’s incessant self deceptions.

    • John Say

      Freidman, Buchannon, Coase, Lucas, Barro, Schleiffer,

      Is your problem with appeals to authority, or merely appeals to sound authority. Krugman can be cited for almost anything as he has contradicted himself on everything.

      Economics is about as empirical as Sociology, in fact economics is the sociology of exchange. Human behavior is about as far from verifiable science as you can get. I would suggest reading Hayek’s Nobel Valedictory, but you have already rejected him.

      A blog named bleedingheart libertarians is likely to focus on philosophy rather than numbers. If you want numbers there are lots of economics blogs. Just a few

      http://econlog.econlib.org/
      http://www.economicthought.net/
      http://caseymulligan.blogspot.com/
      http://cafehayek.com/
      http://divisionoflabour.com/
      http://consultingbyrpm.com/blog/
      http://austrianeconomists.typepad.com/
      http://thinkmarkets.wordpress.com/
      http://www.aei-ideas.org/channel/carpe-diem/
      http://johnbtaylorsblog.blogspot.com/
      http://gregmankiw.blogspot.com/
      http://www.adamsmith.org/

  • Anonymous

    Steve,
    Thanks for the very interesting and provocative post. I have great sympathy for this line of argument, but write to make two points. First, I think the danger of governmental regulation goes beyond the mere possibility of “capture” of the regulatory apparatus by the powerful. The threat is not just this, but that once the authority to regulate is well-established, the state can use this and other economic tools to “buy off” various constitutencies until the opposition to state authority becomes too weak to prevent a very dangerous concentration of power. I am sure you are aware of this, and I mention it just for the sake of completeness. 

    Second, there is also a purely moral, but non-consequentialist, argument against regulation. When you go to the supermarket and buy a can of tomatoes the price is set by the market. If the state decides to lower the price through regulation it is simply favoring the interests of consumers over producers (putting aside all the unintended consequences that will eventually play out). This seems to me to be no different than any other governmental program of wealth redistribution, and is objectionable to libertarians on grounds quite familiar to readers of Nozick and other libertarian theorists.

    • http://twitter.com/DanMKervick Dan Kervick

      The threat is not just this, but that once the authority to regulate is well-established, the state can use this and other economic tools to “buy off” various constitutencies until the opposition to state authority becomes too weak to prevent a very dangerous concentration of power.

      This is a reasonable worry.  But it is a reasonable worry about every power structure that exists.   Power structures preserve themselves by building constituencies of adherents who rely on that power structure for their well-being.   And there always are power structures, which do their business by making and enforcing rules.   Doesn’t it seem that people always seek and build some order in their lives, and where power vacuums occur, other power structure will grow to take their place?   So I don’t see how this is a special reason to oppose regulation tout court and in principle, rather than just this or that specific piece of regulation.   Preventing the monopolization of power, including economic power, requires both horizontal and vertical checks and balances among power structures, and then vigilance over what are always potentially unstable human phenomena.   That is, you only thwart and deter disagreeable exercises of power by consolidating and exercising other forms of power.  And that other form of power will have its own rules and regulations.

      • Anonymous

        I think that to give you a full and fair response would take a great effort, and that at the end of the process, I would still not convince you. Plus, there are people far better equipped than I to make this case. So, I will give you an outline of a response, anmd leave it at that. I think Milton Friedman, Hayek and others are very good in describing why the state represents a unque threat to freedom.

        Some multi-billionaire or group of multi-billionaires might have evil intent, but even the wealth of Bill Gates, Warren Buffett, etc. acting together represent only a small percentage of the overall wealth in society, and in any society that has internalized the rule of law to any extent, other billionaires, millionaires, and even ordinary citizens acting in concert (e.g. the ACLU) can use the courts and the political process to thwart any great abuse by nasty corporate interests. But nobody can stand up to the state. Once a law is passed, if you disobey men/women with guns will come to arrest you. And, the courts will enforce duly passed laws, even if unjust–just ask the Japanese-American citizens sent to internment camps w/o the slightest due process during WWII.  

        • http://twitter.com/DanMKervick Dan Kervick

          other billionaires, millionaires, and even ordinary citizens acting in concert (e.g. the ACLU) can use the courts and the political process to thwart any great abuse by nasty corporate interests. But nobody can stand up to the state. Once a law is passed, if you disobey men/women with guns will come to arrest you. 
          That means, doesn’t it Mark, that these other billionaires are able to make use of the power of the state to pursue their interests against the power of their corporate abusers and enemies, since the courts and political process are institutions of the state.

          The same is true in government.   Our state, or system of government, contains powerful and enduring democratic institutions designed to give the regulatory order a built-in self-modifiability.   When a law is passed, you usually can’t get away with disobeying it.   But you can combine your political power in coalitions to elect whole new legislators.   People thus stand up to the state and its laws all the time, and modify its rules and practices.  The state we live in is not a foreign power, standing over and above the people, but is integrated with, and draws its power from, the social and individual lives of its citizens.

          In my State of New Hampshire, for example, the new, very conservative Tea Party influenced legislature has just devastated the state’s budget in ways that all sides are calling “historic”.   They didn’t like the way the government worked, so they stood up to it, constituted themselves as the new legislative actors in the government, and changed it.  The budgetary carnage is breathtaking.   And yet no people with guns came to arrest them.   Amazing!   My side would like to reverse what we see as the damage wrought.   So we’ll have to do better in the next few rounds of the political process.

          Not to pick on Bill Gates or any other billionaire.   But if the existing democratic national state and its regulatory instruments and apparatus vanished, powerful people like Bill Gates would quickly determine, “Hell, this is the onset of chaos!”   They would higher security forces of their own to defend their property, and move quickly with like-minded others who possess similarly powerful economic interests to organize their power to constitute a new state, with new policing and regulatory powers.  Maybe the new order would have democratic institutions if Gates and the others were enlightened and so inclined.  Maybe it wouldn’t.

          Unfortunately, our prevailing practices of tolerated radical inequality give very powerful economic agents an outsized influence over the outcomes of the institutional processes of self-modifiability.   I would think Hayekians, of all people, would entertain how that thwarts the “wisdom of crowds”, and places outcomes affecting everybody in the hands of powerful isolated agents with very limited knowledge, limited interests and a limited perspective.  Since there has never been an enduring human society without an institutionalized system of effective government, it is important that those  institutions be as democratic as possible.  Someone is always going to regulate.   Better that those regulators are acting as the agents of a broad base of people, and not a few powerful agents.  You might get lucky from time-to-time, and get enlightened oligarchs.   But I think what we know of history and human nature tells us that oligarchs tend over time to reduce others to conditions of servitude.

          • Anonymous

            Of course, when states operate in some rough way in conformity with the rule of law things appear fine, as you describe. The question you need to address, is under what conditions the rule of law breaks down? When it does, the state becomes a ready-made vehicle for mass murder (Stalinist Russia, Nazi Germany, Pol Pot’s Cambodia, etc.). My point, which I think you missed, is that when the state gets its hands on both political and (too much) economic power, this is much more likely to occur. Arguably, something like this happened in Greece, and when people get desperate as they are now, who knows what kind of demagogue may emerge?

          • Damien S.

            But you should also ask under what conditions libertarian societies break down, should you not?  How does an anarchy prevent a state from forming?  How does a minarchy stay minimal? What happens when desperation and demagoguery emerge there?

          • Anonymous

            Well, there’s not too much more to say here. A state limited to a few essential functions has less opportunity to consolidate power  by trading economic favors for political support. History shows that when a state is able to dominate both the political and economic spheres, very bad things happen. If you study the history of modern Germany up to the rise of the Nazis, you will see that this is exactly what occured.

          • Damien S.

            You’ll have to spell that out for me, I’m afraid.  My notions of the rise of the Nazi have more to do with the crap economics of the Treaty of Versailles and Great Depression.  And I note lots of countries today have political and economically influential governments, without turning into Nazis.

            My point was about how a state stays limited to a few functions, especially in the face of desperate people it is designed to be unable to help.

            The minimal state needs to be big enough to catch most crimes and to prevent the rise of private armies, despite doing nothing to slow the concentration of wealth able to hire those armies, while small enough to not be a temptation to hijack.  This seems a delicate balancing act…

          • Anonymous

            The roots of Nazi Germany go back to at least the 18th century. A good resource is “The Course of German History: A Survey of the Development of Germany Since 1815,” by the distinguished English historian A.J.P. Taylor. Very quickly, Germany never achieved the separation of political and economic power. They were consolidated for centuries, until someone ruthless enough came along to use this loaded weapon in the most horrible way imaginable. Yes, there is a huge spectrum of abuse of state power that stops well short of outright tyranny. My point is just that the greater the concentration of political and economic power, the greater the threat.

            I do not claim that the state should refrain from helping the innocent needy, even by means of coercion, if all else fails. If all the state did was national defense, law enforcement, minimal social safety net, roads and environmental regulation, I would be satisfied. As you know, the modern welfare state does a hell of a lot more than that.

          • Damien S.

            …cool.
            Of course, that’s a lot more state than many other libertarians will grant…

  • Tom Anger

    I have no quibble with the main thrust of your post. But I am bothered by this statement: “If a commitment to social justice demands that we care first and foremost about the least well off among us, supporting government regulation may well violate that commitment.”

    Why should “we” care first and foremost about the least well off among us? Speaking for myself, I care first and foremost for those who are near and dear to me, and I resent the implication that there is something wrong with that.

    There are many reasons that some persons are among “the least well off.” Those reasons include, among other things, their own resolute failure to better themselves, despite opportunities to do so. Moreover, unless you are a believer in the fallacy of zero-sum economics, you will acknowledge that the successes of the “better off” do not come at the expense of the “less well off.”

    “Social justice” is a red-flag warning that the user of the term is about to judge social and economic outcomes against an arbitrary ideal, usually an unattainable one. It would help the credibility of this blog if “social justice” never again appears in its posts.

    • Anonymous

      What you said actually resonates with me, despite the fact that by saying so most readers here will think me selfish, callous or worse. But, the ideal of social justice assumes that for one reason or another we have an enforceable obligation to assist the least well off as a CLASS. But as you say, it is unclear how this obligation arises. To discuss the fully is impossibnle here even assuming I had the competence, but the usual justifications of utilitarianism (the marginal utility of wealth transfers) and egalitarian theories of justice have big holes.

      I think our commonplace moral intuition is that INDIVIDUALS do or do not deserve help. Certainly there are cases that only a very selfish person could resist responding to had he the means to do so with only a trivial sacrifice of his own interests. And, part of our task as moral agents, it seems to me, is to use our discretion to separate the deserving from undeserving cases. But social justice as practiced by the state allows for none of this, and it may not be the case that the poor as a group are more deserving than others in some cosmic sense.

      I am somewhat playing devil’s advocate here, because I am not prepared to see widows and orphans starve in the streets, but you comment raises some interesting issues as far as I am concerned. 

    • http://profiles.google.com/entelechy77 Kurt Horner

      Putting “social justice” in scare quotes is a red-flag warning that someone is unaware that they have arbitrary ideals of their own. To wit, you’re assuming that the distribution of wealth in modern developed societies is a) mostly just and b) similar to what would obtain in a truly free society and therefore that c) any attempt to adjust this distribution is inherently suspicious and probably unjust. These assumptions need justification, but many libertarians act as if they were self-evident.

      • Anonymous

        I don’t think so. “Social Justice” is a moral claim, i.e. that we have moral obligations to strangers based on their need. Like all MORAL claims it is in need of justification in some form. It is not self-evidently true, and cannot be dismissed as you attempt by shifting the burden of proof to the skeptic. Until that justification is provided, a skeptic is entitled to his scare quotes. It is a challenge to us. Now, I believe that such justifications exist, but the proponent of social justice must articulate them. This link to an essay by John Hospers shows why this is not so easy: http://johnhospers.com/Articles/JusticeVsSocialJustice.pdf

        • Damien S.

          It’s cute how Hospers lists only stupidity (succumbing to fraud despite warnings), laziness, imprudence, and misfortune as reasons for poverty.  As opposed to the aforementioned discrimination, say, or  theft, or successful fraud, or differences in inheritance.  Which latter raises hard questions for ‘desert’, which questions he does not ask.

          And “would-be entrepreneurs could
          start small businesses and take on employees without the present high probability
          that their enterprises will be bankrupted by taxes and regulation, there would be such
          a resurgence of prosperity that government welfare would be quite unnecessary:
          private funding would be quite adequate to the task, as it was during the first century
          of American history when the standards of living were much lower than they are now”

          One can be rather skeptical that “private funding” was in fact “adequate to the task”.

        • http://profiles.google.com/entelechy77 Kurt Horner

          1) Social justice does not require such a claim. Alternatively one could claim that large disparities in wealth are indicative of underlying injustice that would be difficult to directly ascribe to particular persons, and thus rectifying that injustice requires some sort of collective action. We don’t need to talk about the supposed “needs” of strangers at all.

          2) This is not an attempt to shift the burden of proof. Social justice, however described, needs justification. But so does the assumption that current outcomes are basically just. I’m not shifting the burden of proof — I’m making you aware that it falls on your argument as well.

    • Anonymous

      I guess you really didn’t get the point of this post then, did you? It was supposed to be a concession to the liberal audience whose first inclination is to demand welfare for the most unfortunate members of society. Steve then went far past that, not only explaining why such concerns are not remedied by the government, but also why they are not a truly deep concern at all.

      I think you were too busy declaring war on liberals that you couldn’t see the olive branch he was extending.

  • http://twitter.com/DanMKervick Dan Kervick

    May I point out that people have been quite successful over the centuries in building, governing and regulating villages, businesses, social organizations, states, guilds, armies and other complex human organizations, and advancing the general level of material civilization, despite the manifold ecological complexities of those organizations, and despite the vital and irreplaceable role of the local information processing handled by individual agents within those organizations?  That suggests that human institutions – complexity of parts notwithstanding – often exhibit various aggregate patterns of behavior that correlate with measurable variables, and that can be understood and predicted with reasonable degrees of confidence, and thus that the outcomes of various kinds of higher-level global interventions can similarly be predicted with some accuracy.  In large corporations, people make managerial decisions every day whose global outcome depends on the local behavior of thousands of individual agents.  And yet, lo and behold, many of those managerial decisions appear to be tolerably smart and prudent ones, and succeed in achieving their desired outcomes.  And even where they fail, we rarely find libertarians arguing that there is any real alternative to organized, rule-based management within a corporate enterprise.

    What aggregate outcomes emerge from various kinds of regulations of economic transactions is an empirical question.  It cannot be deduced a priori from a model that can be presented on two pages of a freshman textbook.    It is  an empirical question to determine what aggregate social outcomes are determined by differently constructed networks of rational, or somewhat irrational, self-seekers responding to locally available information in their own environment.  Local optimization can in some circumstances lead to global sub-optimality; similarly local sub-optimality could lead to global optimization.    Simplified theoretical models offer scant guidance in answering these kinds of questions.

    The fact that a doctor is not smart enough to micromanage all of the interactions of cellular organelles in the human body, on a cell-by-cell basis, does not mean that doctors are incapable of administering some very effective treatments that are known to do their work by enhancing or inhibiting particular intra-cellular interchanges, or manipulating threshold constraints in large groups of cells in a single organism.  Similarly, it might be, and often is, possible to administer very effective economic medicine, with an outcome that can be predicted reasonably well, by introducing additional regulatory incentives that prohibit or encourage certain kinds of economic transactions among individuals, or adjust the threshold constraints across which those agents act.  You might not have to know and determine how much company Z1 should charge for a widget to be able to predict the outcome of applying various taxes, subsidies or criminal incentives across a large subsection of the economy.

    There is no fundamental theoretical difference between states and other large human organizations that would for some reason result in the inability of states to successfully regulate significant fields of aggregate economic behavior as a result of micro-level calculation problems.  The regulation of aggregate outcomes does not typically require the solution of an ensemble of individual calculation problems.   Nor would the stipulation that each pair of individuals in some population had successfully calculated and optimized some given problem they were facing entail that the combination of those successful solutions had delivered a desirable aggregate outcome – not even where one measures the desirability of that aggregate outcome in terms  of the summed well-beings of the individual agents.

    This is not an argument for any particular regulatory action.  It is an argument that whether these treatments work is an empirical question that cannot be deduced a priori from the kinds of simplified toy models that are wheeled out in an Economics 101 classes or from the armchairs of either libertarian or socialist philosophers.   Libertarians these day seem to wield a priori arguments against the very possibility of empirical phenomena that we know to be actual: situations in which legislators and regulators frequently succeed in achieving their desired results, results that most people regard as an improvement over the previous circumstance.  I think in the light of such cases, libertarians should relinquish their attachment to deductive “no-go” theorems and crude curves and models, and address and study the empirical phenomena directly.  That’s good advice for everyone, actually.  Philosophers are good at the logical and conceptual analysis of conundrums that occur in the theoretical levels of a science.   But when they venture too far into the way the actual world works, they easily lose their bearings due to their surfeit of rationalistic mental habits and intolerance of detail.

    One other observation.  There is no such thing as an economic order that is not constructed.  They are all based on rules and the enforcement of rules – including those “minimal” states prized by libertarians, which are held together by very, very powerful executive agencies capable of defining and enforcing property rights and contracts, in disputes that often involve very powerful economic actors.   Property rights are not actualized in the real human world by philosophical ruminations on the state of nature.  They are actualized by courts, and lawmakers, and executives backed up by police and security services – people with guns and other means of enforcing the laws.  There has never been a durable form of human social life where the power to regulate was not “granted.”

    • http://www.facebook.com/L.Paul.Strait Paul Strait

      I found Mises’s Human Action to be a bit more challenging than you did, apparently, because it did not seem like a 2 page set of models for college freshmen.

    • GaffiGubbi

      “In large corporations, people make managerial decisions every day whose
      global outcome depends on the local behavior of thousands of individual
      agents.  And yet, lo and behold, many of those managerial decisions
      appear to be tolerably smart and prudent ones, and succeed in achieving
      their desired outcomes.  And even where they fail, we rarely find
      libertarians arguing that there is any real alternative to organized,
      rule-based management within a corporate enterprise.”

      Well, left-libertarians have constantly argued for alternative business models over corporate hierarchies( such as worker co-ops, self-employment, p2p-networking etc.). Regular plumbline libertarians would respond to the claim that corporate managers can plan successfully with something like this:

      “Yes, but you only see the winners – in reality there are also plenty of horrible decisions that are weeded out by the market. Contrast to a state, whose actions aren’t commensurate with anything (even other states and countries have wildly different variables) – with no external pressure,  decicions are likely to be bad. The marketplace is an ocean and corporations are islands of central planning whose actions are influenced by external factors; the fact that a handful of people out of thousands can respond to external stimuli correctly is no more shocking than an organism that can (by natural selection) adapt into an especially harsh environment.”

      Left-libertarians would presumably accept most of this, but also challenge the claim that managerial decisions are all that successful – in reality, big business is so heavily subsidized and protected by state intervention (manipulation of the tax & regulatory codes, direct R&D subsidies, eminent domain, intellectual property etc.) that the corporate house of cards stays up despite the underlying diseconomies of scale. Remove those privileges, though, and we’d see just how successfully you can boss around legions of Dilberts and remain competitive.

      -Watoosh

      • http://twitter.com/DanMKervick Dan Kervick

        I agree with the spirit of much of this, but draw different lessons.   A corporation is not a single, integral rational agent pursuing its own interest, but a collection of people pursuing their own personal interests within that corporation, in accordance with a private organizational charter that permits and encourages a very hierarchical form of organization, and that private stockholders seem to prefer in weakly-regulated capitalist systems.   If we want corporations to stop being strictly hierarchical pyramids of power, we need to use the powers of government to reform the way they are permitted to govern themselves.   Unlike libertarians, I do not see state power as primarily propping up private corporate hierarchies that wouldn’t exist otherwise, but as unwisely tolerating the private consolidation of hierarchical power that private capital wielders have shown a natural proclivity to prefer.  Corporations order around armies of Dilberts because authoritarian warlordism is what happens naturally in any poorly governed system, governed by stress, competition, insecurity, and struggles for dominance, and we have thus allowed our economic landscape to evolve into a battlefield of warlords.   If we want fewer Dilbert-crushing hierarchies, we need more law, not less.

      • http://blog.hecker.org/ Frank Hecker

        “‘Yes, but you only see the winners – in reality there are also plenty of
        horrible decisions that are weeded out by the market. Contrast to a
        state, whose actions aren’t commensurate with anything (even other
        states and countries have wildly different variables) – with no external
        pressure,  decicions are likely to be bad. …'”

        I think a possible response to the “plumbline libertarians” (one that Dan Kervick might make as well, though I can’t speak for him) is that there were also plenty of horrible state decisions that got weeded out by history and the inability of such states to provide for the people and resist competition from other states (whether war or economic competition). This dynamic operates on a much longer time-scale than that of market competition, but it does operate. Thus we don’t generally see states today based on rule by a god-king, states based on feudal economic systems and the fealty of nobility to a monarch, states in which the leaders attempt to monopolize all economic production and capture any surplus, and so on. The only exceptions are places that isolate themselves from the global economy or are propped up by other states for geopolitical reasons (North Korea being a good example of both factors at work).

        Whatever else they may be, modern mixed-economy democracies seem to be pretty good at preserving themselves in long-term competition with states with other forms of government and countries with no or minimal state systems, and given that they are at least to some degree responsive to the preferences of the citizens under their authority, it would seem that they must be doing something right in terms of meeting the needs of those citizens. I realize that a lot of people think that future crises (the “great stagnation”, aging population and exploding health care costs, out-of-control sovereign debt, terrorism, global warming, peak oil, etc.) are going to cause them to collapse like a house of cards and perhaps usher in a new world of anarchy (violent or otherwise). However given the historical record I’d be reluctant to bet against them.

    • Anonymous

      There is no fundamental theoretical difference between states and other large human organizations that would for some reason result in the inability of states to successfully regulate significant fields of aggregate economic behavior as a result of micro-level calculation problems.

      I’m not sure that’s quite accurate. The knowledge/calculation problem that was presented emerges most strongly when some formal organization lacks specific and limited goals to achieve.  While you’re correct in your first statement I’d be interested in hearing both how complex the goal set of these older instances of governance and regulation were confronted with versus that of the modern age — 20th Century to now? My hypothesis would be that they enjoyed a much more narrow set of goals than today’s modern State.

      I’m not entirely sure why your post prompted the thought for me but have you read Albert Hirshmann’s The Passions and the Interest? If not you might find it of some interest.

  • Fernando Teson

    Right on the money, Steve.  Another way of putting your response is this. Suppose it is true that a certain regulation R would ideally solve social problem P (say, a market failure). It does not follow that government should have the POWER to enact R. The reason is that, for the reasons Steve gives, chances are that the government so empowered will not enact R but something else, say R’. By definition, R’ will not solve P, in which case, again by definition, it will most likely be harmful, useless or counterproductive.

    • Damien S.

      This argument palms a whole deck of cards, and is full of arbitrary prejudices.

      Problem P exists, and has cost cP.  This creates pressures for government to enact R, which cancels out cP.  Other pressures push government to enact R’, with cost cR’.  The first pressures don’t magically go away, so R’ probably does address P somewhat.  So the question si whether the new cost cR’ is systematically greater than the reduction in cP.  I see no reason for assuming a priori that it is.

      Furthermore, even if it were true that on a simple average, cR’ > cP, that might not matter.  Prudent behavior often means planning for extremes, avoiding worst case behavior.  If there are existential threat costs cP which government is good at making go away, then ubiquitous but minor government failures elsewhere are a worthy price to pay.  I’ll take unnecessary hairdresser licensing if it means I get cheap clean water and no more acid rain.

      (A la insurance.  Just going by expected value, buying insurance is irrational, like buying lottery tickets; the expected value is negative.  But after looking at the value of possible outcomes, we conclude that a certain net loss is worth avoiding the chance of bankruptcy.)

      • Fernando Teson

        Clever reply, Damien, thanks.  However, I´m not convinced.   You simply change the assumptions of the example.  The assumption is that only R will solve P.  Given how delicate social relations are, and given the host of uninteded consequences of any intervention in the market, you cannot stipulate that R’ will “address P somewhat”.   R’ will not address P, period. This is not an “arbitrary prejudice”,  it’s what happens all the time.  For the rest, I don’t fully understand your point about “minor governments failures elsewhere.”   What are exactly these “existential threat costs cP which government is good at making go away”?  I thought the discussion was about a problem P which (we all agree) can be solved by regulation P. Now what the government does, R’, does not address P.  What are these other benefits of this misguided regulation?

        • Damien S.

          “The assumption is that only R will solve P… it’s what happens all the time”

          Okay, given that assumption, your conclusion may follow.  But that’s a very strong claim to make about all or even most government regulation, compared to a claim that R’ usually addresses P somewhat, even while having parasitic side effects.  You would then have to show that the claim actually applies to reality for us to be convinced by it.

          Existential threats from not having government: getting conquered or wiped out by better organized aggressors.   Overuse of resources whose ownership isn’t allocatable.  Pollution, e.g. acid rain, ozone depletion, global warming, ocean acidification, eutrophication.

          A society that has no regulation and thus has faster economic growth[1] until it perishes in its own wastes or Mexican gang invasion is not obviously superior to one that licenses hairdresssers and puts a tariff on sugar but is capable of not dying.

          [1] Leaving aside the validity of measures of growth that don’t include drawdowns of environmental capital.

          • Anonymous

            The US Government is the biggest polluter. Who will regulate the regulators? Can you say Moral Hazard?

          • Damien S.

            “The government still pollutes, so let’s get rid of the government and let everyone pollute!”

            Come to think of it, I’m not sure what biggest polluter even mean.  It’s bigger than any corporation, so even being moderately cleaner could lead to more total pollution.  And does it pollute more than everyone driving cars and burning coal?

            Mostly, AFAIK, the issue is the military being somewhat exempt from environmental regulation.  This doesn’t seem like the problem is too little regulation.

            (Gee, wasn”t there talk in the marriage thread about how equalizing a license to kill wasn’t a step forward?)

  • Gregory Roscetti

    I’m surprised that no one has brought up Adam Smith, when the subject is free markets

    To widen the market and to narrow the competition, is always the
    interest of the dealers…The proposal of any new law or regulation of
    commerce which comes from this order, ought always to be listened to
    with great precaution, and ought never to be adopted till after having
    been long and carefully examined, not only with the most scrupulous, but
    with the most suspicious attention. It comes from an order of men,
    whose interest is never exactly the same with that of the public, who
    have generally an interest to deceive and even oppress the public, and
    who accordingly have, upon many occasions, both deceived and oppressed
    it.

    And

    People of the same trade seldom meet together, even for merriment and
    diversion, but the conversation ends in a conspiracy against the
    public, or in some contrivance to raise prices.

    So Adam Smith appeared to have seen some need for regulation, while at the same time being very suspicious of it. 

    • Steven Horwitz

      Gregory,

      Like many who trot out that quote from Smith, you neglect to finish the paragraph:

      “It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice.  But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less render them necessary.”

      If I’m right about regulation and rent-seeking, the regulatory power of the state both “facilitates” such conspiracies and “renders them necessary.”  How many industries have industry-wide lobbying groups after all?

      • Damien S.

        You beat me to Smith, Gregory.

        Steven: Smith was published in 1776.  Over a century later, we started having anti-trust laws.  They can certainly be executed.  So the question is then whether they are inconsistent with liberty and justice, or whether they were outside his imagination.

        The governments and their interventions that Smith wrote against were monarchies (or for the UK, perhaps a narrow oligarchy would be fairer) that used mercantilism and revenue monopolies to raise money for fighting wars.  Little wonder that he saw little good in them.  Also, no one knew how to make dioxins, or ozone-destroying CFCs, or what the precise effects of taking a crap in the water were.  People thought gold and silver were real money.  The dodo had gone extinct, but extinction had not become a pattern.

        Broad-franchise democracies that use progressive taxation to provide public goods were completely outside his experience.  The thousands of pollutants we can produce today are outside his experience.  A well-managed fiat currency, as well as Keynes’s analysis of the paradox of thrift, are beyond his experience.  Smith had a lot of insight, but the problems we face and the potential governmental solutions we have, both extend rather beyond him.

        Personally, I think “free market” is an ill-defined (free from what?) and emotional/ideological label.  In terms of what’s actually good about markets, I’d say “competitive markets without externalized costs and benefits.”  Which tells us when private businesses can perform well — when they’re competitive — and indicates when the whole thing can come crashing down — when costs are largely inflicted on outside parties.  If a market is naturally competitive and with effects confined to exchange, “freedom” applies.  If it ends to monopoly for whatever reason, or has lots of externalities, government regulation has an excellent chance of improving outcomes.

        That is, I note, properly not even a liberal or progressive argument. It’s just a pragmatic reading of Econ 101 in its entirety, without any appeal to the equality concerns that distinguish the left.  That it sounds liberal today is only because the modern right has developed an allergy to any government action.

        • Steven Horwitz

          First of all, I’m no Smith worshipper.  I don’t invoke Smith because I think he was right about everything and certainly  not because he was a hard-core free marketeer.  He was neither.  I just think it’s unfair to use that Smith quote and not finish his thought.

          Second, the antitrust laws are a PERFECT example of my point:  it was big business that wanted them and helped to design them largely as a way to lock in their market power against the innovative threat of smaller firms.  Read anyone from Kolko onward to get the historical evidence. 

          As for your other comments, there’s much there to respond to, but I’ll only note that the one area I know best because I’ve written two books on it is monetary policy and the history of money.   And I would just point out that there’s little one can do to rob the average person of his wealth than to inflate the currency and the history of the 20th century is a history of inflation by central banks.  Central banks, I might add, that were also the creation of the wealthy and who they were supposed to “regulate.”  No one benefits more from a “managed fiat currency” than the Goldman Sachs of the world, and no one is damaged more than the worker who has few ways to protect himself against inflation.

          • http://www.facebook.com/profile.php?id=1287114893 Rick Schaut

            Sorry, but I can’t let this one pass without comment:

            “And I would just point out that there’s little one can do to rob the average person of his wealth than to inflate the currency and the history of the 20th century is a history of inflation by central banks.”

            You have this backwards. The one thing that can most effectively rob people of their wealth is a massive *deflation*, which is why wealthy people happen to be rather fond of central banks.

            Which, I suppose, brings me to another point–people who misunderstand Economics so badly as to make this level of elemental mistake should probably avoid trying to use Economic arguments to justify what is, essentially, a moral philosophy.

          • Anonymous

            You do recognize that per the Austrians inflation is the expansion of the money supply, and that the associated rise in prices is the effect? So ceteris paribus, inflation acts as a hidden tax. Given this Austrian definition, what is it that you mean by deflation?  Do you mean decrease in money supply or price deflation? Thanks.

          • Steven Horwitz

            Well Rick, my  Econ PhD and two books and dozens of articles on money and inflation say otherwise. 

            The empirical evidence of the effects inflation has on those on fixed incomes or without the means to protect themselves against prices rising before their wages do is abundant.

            As for deflation, are we talking a price deflation or a monetary deflation, i.e., from the goods side or the money side?  If the latter, I agree that monetary deflations are horrific, though the worst one in US history was caused by… drumroll please…. the central bank.  If the former, you’ll have to explain to me how rising productivity and lower prices harms people.

          • http://www.facebook.com/profile.php?id=1287114893 Rick Schaut

            Given the way people with Econ PhD’s have managed to forget the lessons we learned 70 years ago, I wouldn’t be so quick to trot out an appeal to authority.

            However, given that you do have a PhD in Economics, you know full well that I’m talking about a money supply deflation. You should also know full well that your reference to the Great Depression is specious at best. Yes, it was caused by a central bank. That was nearly 80 years ago, and it would have been greatly surpassed a scant three years ago had we *not* had a central bank.

            That’s the problem with this whole argument. Indeed, we’re having this discussion on the internet. We wouldn’t be having this discussion on the internet had it not been for some laws that the government passed making it possible–that is unless you want to argue that a group of competitive firms in the industry would have banded together to agree on a set of standards that would inculcate a new technology that can only be horribly disruptive to their individual business models.

            A myopic view of history that sees only the bad things government has done doesn’t make for a compelling argument.

          • Anonymous

            Deflation is not very harmful to the rich — they tend of have most of their money in debt instruments with fixed nominal payouts. The real value of all these holdings and the income stream they generate is increased. They really don’t care about the market price of their estates, their yachts or the stock price of their companies.  They are somewhat hurt as output prices drop but their input prices don’t fall as fast — this is typically a wage rigidity.

            The not rich but well off, middle class and upper middle class, will feel the impact of declining equity prices and, if they’ve been spend thrifts as we’ve seen in the past bubble period, they will also be hurt by the decline in their home prices.

            The poor face the worst impact from the deflation because with rigidity in wages only quantity can adjust so many lose their jobs and income. With little in the way of savings (wealth) the poor only get a minor reprieve in the form of lower good prices (thought these may not have fallen much yet).

          • Damien S.

            And if the wages of the poor did adjust downward quickly, then they’d be earning less money to pay off a fixed debt, so still being screwed.

          • http://twitter.com/DanMKervick Dan Kervick

            And I would just point out that there’s little one can do to rob the average person of his wealth than to inflate the currency and the history of the 20th century is a history of inflation by central banks.
            I assume you are speaking Austrian here, and using “inflate the currency” for what others refer to a “price inflation/currency devaluation”.  Fine.

            So that out of the way, there’s one thing I have never understood about this argument.  While it is no doubt true that some people lose wealth as a result of price inflation, it is also true that others add wealth as a result of the same phenomenon.   And I am not sure how to calculate the effect on the “average person”.   For every financial asset there exists a corresponding financial liability, and vice versa.   Inflation reduces the value of financial assets, and cuts the negative value of financial liabilities by the same amount.   It hurts people in proportion to the amount of financial assets on their balance sheets and helps them in proportion to the amount of financial liabilities on their balance sheets.

            Whether a person is helped or hurt overall depends on those proportions.  It is certainly harmful to people whose balance sheet is dominated by money assets held, and by other assets whose value is pegged to the value of money.  But if the most sizable item on your balance sheet is a big mortgage, say, as it is for many Americans, then a consistent increase in inflation is probably more helpful than harmful.   Very many people in our society are both creditors and borrowers, so it is no easy matter to compute how the average person fares.

            If you are the kind of person who wants to be free to stuff your monetary assets under your mattress and go into Rip Van Winkle sleep for twenty years, and have that money be worth the same amount when you wake up because the society has cooperated in preserving the value of your money, I think your expectation is somewhat selfish and unreasonable.  If your money had been engaged in the credit system over the years, where it helps society by providing funds for productive investment, and also probably most often achieves a rate of return in excess of inflation, then you would not be hurt by the inflation.

          • Anonymous

            “While it is no doubt true that some people lose wealth as a result of price inflation, it is also true that others add wealth as a result of the same phenomenon.”

            I don’t quite follow your thinking here? When I think of wealth creation, which I assume you mean by “add wealth”, it’s along the lines of Smith – gains form trade, gains from specialization, etc. In this type of process one finds aggregate gains (unless we’re talking about monopoly formation with a solution to the Coase Conjecture). Example, Producer 1 finds a more efficient production process that reduces unit costs. His increase in output and reduction in price will affect other market producers resulting in a transfer from other producers to him. At the same time the reduced price increases consumers budget constraints allowing increased consumption and savings. While we cannot make interpersonal utility calculations we can make calculations regarding tangible wealth (things and real money balances) .  

            When money is increased I only see cases where transfers occur.  I just don’t see where any wealth gets added here? While I’m not trying to make some strong case for money being neutral but don’t see that one can make the unambiguous claim that wealth is added.

          • Damien S.

             Which is worse, modest inflation or prolonged unemployment?

            Today’s workers bear a large burden of debt, strangling recovery; inflation would help that.  Inflation hurts those on fixed incomes, but workers arent on fixxed incomes — wages go up — and Social Security is adjusted for inflation.

  • http://twitter.com/VALiberaltarian VA-Liberaltarian

    I think there’s a historical gap between the libertarian critique of regulation and the threat of regulatory capture and the sort of regulations that liberals today believe they are pushing for. During the golden age of big government regulation a great deal of the regulation was in areas and sectors like transportation, both trucking and the airlines, where the regulation was justified not only by appealing to consumer protection but an argument dating back to the progressive era that government had to step in to manage competition in the industry to protect it from itself. I think we’ve largely moved beyond that approach. 

    But liberals believe they are today pushing for regulation that is clearly consumer vs. business, such as environmental regulation. Given the heated opposition to climate change legislation from traditional oil companies, liberals argue there’s clearly not a situation in which big business is willingly involving itself in the regulatory scheme.

    On the other hand, the opposition of oil companies doesn’t account for the support climate change legislation received from other traditional energy companies, such as electric power companies. So is there an aspect of regulation that liberals hope they can take advantage of? Yes, regulation opens the door to the rich and the powerful to gain at the expense of others. But what about finding special interests that largely align with the interest of the public as a whole, or who are least opposed to the public.

    From a historical perspective the liberal could turn to the New Deal as a primary example. During that time the Democratic Party build up a close alliance with large capital-intensive multinational corporations who were involved in less labor intensive processes. They weren’t pro-labor/pro-union, but they were less actively opposed than more labor intensive sectors of the economy. 

    So a pragmatic liberal might say, yes, it’s true that this legislation will help some “big business” types. But we also believe it’s better than the status quo for most Americans. That some business interests benefit isn’t a bug, it’s a feature, because otherwise it would never pass in our political system.

  • Hyena

    The first prong of your argument is this: since it is impossible to collect enough information, you need prices to aggregate and proxy for this information. This is true for governments but it is also true for firms and individuals. In fact, Hayek, et al envision an economy proceeding on a largely Popperian basis demanding that progress is made, in essence, through failure. But we can’t act on this basis: it is a type of pernicious skepticism in that it forecloses on all actions as unjustifiable. Not just government actions but those of persons, firms and cooperative groups. Because this is facially a failure mode for a directive theory, it cannot be used for one. It is an argument of skepticism only, a consideration for directive theory.

    The second prong of your argument is this: the power to regulate will eventually induce capture. Again, however, this is a skeptical argument and not sufficient to direct action. Taken by itself, like the first prong, it recommends complete inaction by everyone at all times. It may have other problems besides, since it might also weakly deny the existence of persons.  However, I do not intend to repeat myself. 

    The major problem with this argument is simply that it’s a slippery slope. Now, you could make an entropic argument to justify the slope, but that would require more basis than I think anyone actually has in evidence. Secondary to this is the assumption, all non-formal concerns are second to formal ones, is that it strongly denies the legitimacy of governance at every level. Because all forms of regulation–arising from yourself, arising from government, arising from loose bodies of individuals, arising from firms, etc.–are subject to capture by an interested party, none of these can be legitimized in this view. Similar to the first objection, this one concludes that your second argument independently forecloses on judgment generally as illegitimate because it may be influenced. This seems a fatal flaw.

    The third prong of your argument is this: regulations will ultimately benefit those with power and thus wealth. This argument can be simply  dismissed as irrelevant. Regulations will benefit the wealthy and the powerful, it will make them wealthier and more powerful. The goal of regulation is not to foreclose on wealth or power, but to make wealth and power the reward for actions which advance some source of goodness in the world. I doubt many would object if a cheap, freely available cure for cancer made its creator fantastically wealthy. In fact, I believe that most people would applaud this and say “such is how the world should work”.

    • pjg9g

      “In fact, Hayek, et al envision an economy proceeding on a largely Popperian basis demanding that progress is made, in essence, through failure. But we can’t act on this basis: it is a type of pernicious skepticism in that it forecloses on all actions as unjustifiable.”

      This is a really interesting point, but it seems like you’re insisting that justification be more absolute than it needs to be. True, under a Hayekian/Popperian epistemology, we couldn’t absolutely justify any of our actions, but that’s just the point: we need a way to use more knowledge than we actually have. I think you’re overlooking the way in which free markets are self-regulating. That is, if we could think of the whole market as one huge mind, then it would certainly have its reasons for doing what it does (which is not to say it would be perfect); but none of these reasons would be consistent with any one individual human’s normative judgment of the world. And we need this, because none of us do have an ultimate justification of our own normative judgments. By restricting the effects each individual normative judgment can have, we allow ourselves the freedom to act without being overly concerned with self-justification.

      “The goal of regulation is not to foreclose on wealth or power, but to make wealth and power the reward for actions which advance some source of goodness in the world.” OK, but this is also one of the goals of implementing the free market. The question is, do you have a way of completely prioritizing all human values in order to justly allocate the resources we have toward particular endeavors? I don’t think free market advocates are against regulating against certainly unjust behaviors–violence, for instance, should be severely regulated and, if possible, eliminated. But when regulations become a vehicle for pushing a particular positive agenda, this must be based on the presumption that a certain individual human agenda has a superior normative claim than all other human agendas. For example, who says we should invest more money in curing cancer than we do in reducing carbon emissions? There simply is no way to calculate these things absolutely.

      • Hyena

        True, under a Hayekian/Popperian epistemology, we couldn’t absolutely justify any of our actions, but that’s just the point: we need a way to use more knowledge than we actually have.

        The issue is that Popper is actually creating a post hoc criterion of evaluation. Its motivational element is in that, unless it is subject to that criterion, it can’t be science. The criterion is then used to root out false theories.  The problem with Popper is that it means all your theories are false and believing them is strictly unjustified; this is why no one uses this anymore and, IIRC, why Quine struggles rather heroically to create an arm’s length empiricism.

        I think you’re overlooking the way in which free markets are self-regulating.

        This is, strictly speaking, false or a tautology. If you include the rules of transaction into the market itself, then it’s tautological and “the market” expands to become a metaphor for organic process. But that is, I think, taking things a bit farther than their pragmatic value and so requires us to create a burdensome theory of sub-market analogs and their rules. This is simply unacceptable to me because it’s not clear that we’ve got a good reason to do this other than debate points. Obviously, if this statement is not tautological then the rules under which markets operate are exogenous and markets are ipso facto not self-regulating.

        That’s not to say they aren’t self-allocating or “self-regulating” in the sense of “consistent operation”. But they are the highly complex interplay of transaction rules for the markets. You can’t actually build a market up from individual transactions because there’s no underlying unity to that aggregation; it’s the existence of consistent rules which make this possible. We can apply, if we like, a Coasean justification: without the predetermined rule sets, transaction costs are impossibly high because there is no way of accessing or transmitting price information.

        And we need this, because none of us do have an ultimate justification of our own normative judgments.

        This, I think, is your real motivator and, I think, that of most of the Austrians. I reject this out of hand and demand to know how you propose to argue for your preferred outcomes from moral skepticism.

        But when regulations become a vehicle for pushing a particular positive agenda, this must be based on the presumption that a certain individual human agenda has a superior normative claim than all other human agendas.

        This might be a valid claim but we need an argument, as Teson is here wont to make, about justification in collective action. Personally, I don’t think the government is well-justified in many things and that many regulations are bad. But from experience I know that this subset is small and that, for the most part, our regulatory system is essentially preëmptive jurisprudence that fixes the resolution of inter-firm disputes in advance. Moreover, the modern liberal case is generally about transparency: given accurate information about products, consumers will not choose them or have little justification for complaint. Food labeling is a classic example. Even the “vanilla option” requirement proposed in banking reform is an example, since it creates a benchmark product against which all prices can be compared; in fact, I think we could (and should) implement that plan in lieu of much other regulation in consumer finance.

        This is already too long, however.

      • Damien S.

        There simply is no way to calculate these things absolutely.

        This is a really interesting point, but it seems like you’re insisting that justification be more absolute than it needs to be.

  • http://biggovernment.com/author/mwarstler/ Morgan Warstler

    There is more to say on the “knowledge problem.”

    It isn’t just that there is dispersed knowledge, modern liberals – deep down – will grant this generally: centralized technocracies have far less scope and vision than the market as a whole.

    They have these issues:

    1. In terms of having things other people want / value…. Liberals are either mostly incompetent, or believe they are incompetent and come into the situation fully aware that a system that allows each individual to maximize the gains of their knowledge – puts liberals at risk competitively.

    In many ways, you “are” liberal because most everyone else society raises up is not impressed with you.  If you don’t see an easy path to success in life, it is easier to decide the game is rigged.  Since everyone else so obviously values the wrong things.

    They perceive an outcome in which they lose relative to what they can have if people like them are in charge.

    2. They are unable to see past the first level of “asshole with knowledge.”  This one is most bothersome.  Libertarians are far more rational about the statistical odds (100%) of another asshole with specialized knowledge stealing market share from another asshole who’s leveraging their specialized knowledge / tools in a way with giant outsized gains.

    Libertarians KNOW a Google is always right around the corner to take down Microsoft.  Liberals don’t realize it is a forgone conclusion, in their gut, they likely disbelieve it.

  • Kenneth Switala

    “So one problem facing regulators is that they lack the knowledge necessary to know what people value and how much, so in deciding what to regulate and how, they are acting on incomplete and often erroneous information.  By trying to override the market, they are substituting a less informationally-rich system for a more rich one.”

    I don’t see why more ‘information’ is better or desirable. Others have raised the issue that individuals make value judgments that are *certainly* against the interests of wider society and so we regulate them (and thus discount their values) with few questions asked… in the best case this is a sort of ‘enforced super-ationality’ on persons who might not be rational when it would be beneficial to be so. So the system we want really just depends on the degree of how well we can decide these issues.

    We can’t dodge the tough judements on the ‘true’ complexity of models ultimately needed for ‘just’ economic activity and free market advocates could be just as overconfident as regulators are because they are playing the same game but just reaching different conclusions. If free markets are destined to discount values either through imperfect trade and money systems and natural cultural/social disagreements between individuals then we have to determine the trade offs that one system will have over another just like a non-corrupt regulator might do to determine which regulations to have. To not make these judgements would mean not having a position on this matter at all.

  • http://francisfrog.tumblr.com/ Francis Frog

    I have a lot of issues with these claims, but the one I most want to address here is the political dimension of the totally free market.  This seems to me to be an area that many economists prefer to ignore – which is odd, considering some of Hayek’s most fascinating insights were in this area. While I agree that regulation can and often does inhibit market efficiency, I fail to see how the free market would counter the very human tendency to self-organize for their own benefit. How would the free-market prevent banks from colluding to limit competition, or to control which segments of the population are deemed credit worthy? In this sense, isn’t government regulation only replacing the self-regulation of the industrial trust system with one which is at least marginally more accountable to consumers and workers? 

    • Anonymous

      But almost all of Public Choice theory, including the contributions from Hayek, indicates that the government regulation system is not “marginally more accountable” and in many cases it’s been, for all apparent indication completely unaccountable to the customers/workers the program is claimed to benefit.

      • Damien S.

        “It works in practice, but does it work in theory?”

        • Anonymous

          I suppose that was poorly stated. I should have said “Public Choice literature”, which includes the empirical studies.

      • http://francisfrog.tumblr.com/ Francis Frog

        But that still doesn’t answer the question. What makes government control so much worse than private control? From where I’m standing, I’d rather have one bad government with a set of rules to follow than a hundred bad corporations acting as they please.

  • Anonymous

    Mark van Roojen wrote:

     

    The only bar to regulations that favor one group
    over the other will have to be some sort of politically stable
    meta-regulation.  So why think that the arguments that show that the more
    advantaged will get their way with respect to more specific regulations won’t
    also show that any actual meta-regulation (limiting the kinds of market
    regulation that will be permitted) won’t also be biased to favor the better
    off?

     

    I had essentially the same question. Some of the
    problems raised against regulated markets are that the political process of
    determining the regulation can be skewed towards those with power and
    influence. But that is a quite general problem and I don’t see how you think it
    is avoided. The world in which libertarian principles get implemented should
    not be assumed to be more altruistic or free of the influence of money than the
    world in which non-libertarian principles get implemented. We cannot,
    presumably, solve the problem of money influencing regulation in favor of the
    rich by urging the passage of a general rule against allowing money to
    influence regulation in favor of the rich. Or if we could, then the
    non-libertarian has as good of a reply to the problem as the libertarian. It
    can feel as though the non-libertarian is being forced to confront the
    difficulties of the real world whereas the libertarian is not.

    • Anonymous

      You and MvR raise an interesting challenge, and I look forward to Steve’s response. My own reaction is to (forgive me) answer a question with a question–i.e. is the absence of regulation an alternative “meta-regulation”? As you know, the libertarian ideal is (at least for proponents of the minimal state) a state whose role is limited to the prevention of “force and fraud.” This framework implies that the relationship between citizens would be conducted purely on a voluntary basis. So, MvR’s question as to whether “any actual meta-regulation (limiting the kinds of market regulation that will be permitted) won’t also be biased to favor the better off?,” assumes that a regime of purely voluntary interactions constitutes a “meta-regulation” that can be “biased” in some fashion. But it is not self-evident to me that a regime of purely voluntary interactions could constitute a “bias” of any sort, at least not a bias resulting from some deliberate system design. Unless, of course, you think a system that permits unexcused violence and fraud is a morally legitimate alternative. This still leaves open the question of which arrangement would actually most benefit the poor, a debate I will leave to more qualified advocates. 
       

      • Anonymous

        Mark, 

        I see the point that van Roojen and I are urging as being a bit different. The point as I see it in no way challenges the claim that a completely unregulated market, if we could flip a switch and set up such a society, would be in every way ideal. Rather, the worry is that the rules of this game require the non-libertarian principles to have to navigate their way around the real world where self-interest and disparities in power heavily influence the way that even ideas that would be great if they could get implemented get implemented. The answer, we are told, is to just agree to rules wherein the state gives up the power to regulate the market. But the moment where that proposal must itself navigate its way around the self-interest of the powerful in ways that might distort it is not discussed. 

        • Anonymous

          OK, but wouldn’t your objection to Steve, if valid, also work against egalitarian proposals for a more just society? Let’s say we agree that the current institutions in our society are unjust to the worst-off group because they prevent the poor from having an equal chance of obtaining their fair share of “primary goods.”  You and I agree that these basic rules need to change, but we are met with the objection that when we try to implement the changes, due to the influence of the powerful, the end result will be worse for the needy than the status quo.

          • Anonymous

            The worry was that he was championing these problems against non-libertarian proposals yet overlooking them when it came to libertarian proposals. The point van Roojen and I were trying to make is that these sort of concerns seem, at least initially, to be a problem for any proposal and not yet, without further argument, to provide a rationale for libertarianism.

          • Anonymous

            After reading one of the link’s Steve provided in his post, I think I may have an answer. He starts with the premise that the state will always and inevitably serve the interests of the most economically powerful elements in society, i.e. huge corporations. If we grant him his premise, then any activity the state undertakes, including regulations, will by stipulation be formulated and enforced in a way that will advance these interests. Accordingly, when we cut back the reach of the state we necessarily even the playing field since it is already tilted in this way.

          • Anonymous

            Who is it that is cutting back the role of the state and what are their motivations like?

          • Anonymous

            If I understand Steve’s argument correctly, then I think this might be irrelevant. I believe he is saying that if you are a member of the worst-off group, being “helped” by the state is like exposure to a toxin that is seriously deleterious to your health at any dose. Any reduction in exposure, however caused and whatever the motives of those bringing it about, is beneficial. I don’t necessarily agree with this claim, but this is how I am interpreting it.

          • Anonymous

            Libertarian or non-libertarian policies could both come about in ways not influenced by the self-interest of the powerful in mysterious or lucky ways. If there is to be an interesting contrast that helps vindicate libertarian thought, it should be that the benefits that flow from libertarian policies can be brought about more reliably and in ways that are less subject to distortion by the self-interest of the powerful than the benefits that, let us suppose, would flow from non-libertarian policies if only they were not distorted by the self-interest of the powerful. That seems to me what the argument I am focusing on needs and what we do not yet have an argument for. 

            Additionally, I suppose that most reliable transitions from a less libertarian state to a more libertarian state will themselves be brought about by the state. This would be bad news for the argument you attribute to Steve.

          • Anonymous

            I don’t have any vested interest in this fight, nor the energy to pursue it further, but I think you are asking too much of Steve’s argument. If a scientist, using the tools of his/her trade, shows that exposure to a certain substance (previously thought benign) is toxic, the scientist has done his/her job. We don’t say to the scientist, “well that’s a useless discovery because when we try to implement your findings through regulation or some other means bad things might happen.” The cause and effect relationship Steve posits (cut back the state = improving the lot of the worst-off) may or may not exist, but as a theorist (vs. a legislator) he has done his job.

          • Damien S.

            Exposure to oxygen is toxic.  It causes free radicals and such.  OTOH, lack of oxygen will kill you in a minute.

            Sunlight causes skin cancer.  Well, too much sunlight does.  It also causes vitamin D, and getting no sunlight will kill you faster via deficiency.

            Brains can go wrong in really bizarre ways, causing self-destructive behavior less intelligent clumps of cells would be immune to.  OTOH, brains obviously are really useful when they work right.

          • http://twitter.com/DanMKervick Dan Kervick

            Apart from questions that can be raised about the main premise here, the conclusion certainly does not follow.  Even if  it is true that the state always serves the interests of the most powerful, it doesn’t at all follow that by rolling back the state, the interests of the most powerful are harmed and the playing field is leveled.  It is possible that rolling back the state might permit the economically most powerful to advance their interests even more effectively than they could when they were required to rely on the instruments of the state.

      • Damien S.

        As you know, the libertarian ideal is (at least for proponents of the
        minimal state) a state whose role is limited to the prevention of “force
        and fraud.” This framework implies that the relationship between
        citizens would be conducted purely on a voluntary basis.

        In the ideal world of frictionless tables, massless pulleys, and spherical cows, yes.  In the real world you have unregulated pollution and other externalities, children who spend 18 years of their life undergoing involuntary interaction, people whose ability to voluntarily refrain from interactions is constrained by their need to not starve to death, crimes and frauds which are not perfectly prevented or undone or compensated for, etc.  The flaws of real governments are being asked to compete with an ideal and frictionless libertopia.

        When i was libertarian, an-cap even, I always did have a nagging sense of unsolved problems.  National defense, pollution, species extinction, antibiotic overuse, poor children… I basically took an attitude of not having solutions but hoping solutions would be found.  I basically stopped being libertarian when I stopped handwaving, and accepted an imperfect system that at least tries to address such problems.  It has its own worrying flaw — I want gov’t to solve public good problems, but democratic participation is itself a public good, which I think is another way of stating the public choice problem — but OTOH it at least works at the moment, and has clear paths to improvability if not perfectibility.

      • Anonymous

        “But it is not self-evident to me that a regime of purely voluntary interactions could constitute a ‘bias’ of any sort, at least not a bias resulting from some deliberate system design.”

        I don’t know that I agree with the idea that self-serving bias in transactions arising from the motivations of the people involved in a regime of purely voluntary transactions (remember, if everything is purely voluntary, no one has a right to participate), should always be considered completely separate of the regime itself, especially if I could make the case that such bias exists when the system is put in place, and/or is reasonable predictable.

  • Anonymous

    Who is it that is cutting back the reach of the state and what are their motivations like? 

    • http://www.sandiego.edu/~mzwolinski Matt Zwolinski

      You can do this, I think, if you have a Disqus account and sign in with that to comment.  You might not be able to do it on the blog itself, but if you go to disqus.com, you should have the option on your ‘dashboard’.

  • Anonymous

    Free markets don’t give us utopia, but I really do believe they do better by the poor than do regulated markets for the reasons I’ve outlined.

    I don’t see how that follows. Given that A ≠ B, and A violates my self-imposed commitment to social justice, it does not from this follow that B violates said commitment any less. Not a single argument was made that either 1) free markets are good at social justice or 2) that free markets are better than regulated markets. The argument is once again that regulated markets are bad. Which we know. We’re reading posts on a libertarian website for Pete’s sake. I don’t expect anyone to make the argument that we need lots of (or sometimes even any) regulation to benefit the poor (assuming for a moment that we actually give a rip about the poor, which I’m starting to doubt).

    What I would like to see is something, anything, that says: “this is how free markets bolster an assumed commitment to social justice and this is why they do it well.” Simply repeating why regulation does do the job doesn’t address this. Surely there are valid arguments in favor of libertarianism that stand on their own two feet?

  • http://profiles.google.com/entelechy77 Kurt Horner

    There is a major problem with the above post, in that it seems to treat all regulation as a net reduction in the how free the economy is. Enforcement of laws against, say, fraud are generally not considered “regulation” by libertarians — however regulatory agencies frequently do enforce rules that are consistent with general principles of justice. In other words, to the extent that regulatory agencies are performing an enforcement  role that libertarians would prefer to have handled by a tort system, those regulatory agencies are making the market more free, not less.

    Simply removing a regulatory agency or diminishing its power or budget will not necessarily trigger the legal system to fill the gap. In fact, given that enforcement of tort law is not cost free, we have strong reason to believe that unless a deregulation initiative has specific provisions for moving enforcement functions from the agency to the courts that the effect of deregulation will be to effectively legalize whatever pernicious practices were being regulated by the agency. Recent events in the financial sphere support this view.

    Now you might argue that all regulatory agencies enforce a bundle of rules, some of which could be described as “preventing injustice” and some of which could be described as “central planning” — and thus the question is whether an agency is doing more of one than the other. But regardless, deregulation appears to throw the justice baby out with the planning bathwater.

    And if at least some of what regulatory agencies do is supportive of markets, then we can’t and shouldn’t talk about “regulation” as if it were all bad.

    • Anonymous

      How do you account for the regulatory agency’s displacement of the market by its very own existence?

      • http://profiles.google.com/entelechy77 Kurt Horner

        That effect is incredibly small by comparison to the effect of the activities of a regulatory agency. The difference between a regulatory agency confined to preventing injustice and a tort system confined to preventing injustice is small and unimportant compared to a system of either type which engages in planning.

  • Anonymous

    Steve, don’t we need some starting definition of what government regulation is? Without one how do we distinguish between enforcement of rights, mostly property rights but clearly other rights come into play in exchange transactions, and other forms of government regulation?

    I do realize that a) this will probably not be a sharp definitional distinction and b) it may be the case that differing ideologies may well disagree on many or even all attempt to partition the space.

    Perhaps there are alternative approaches to this problem as well (perhaps focusing on a process of establishing such boundaries rather than attempting to define them a priori).

  • Anonymous

    A question for those advocating regulation. Why should regulation be the appropriate course of action when we have a working legal system that could also be employed to resolve the social dispute?

    • http://profiles.google.com/entelechy77 Kurt Horner

      Couldn’t this same argument be deployed to question why a social problem presently handled by a regulatory agency be moved into the legal system? And in both cases aren’t you simply privileging the way things are done at present? Such an argument is inherently conservative (opposing change simply because it is a change). Aren’t liberals and libertarians supposed to share a suspicion of any argument that assumes the status quo is automatically more likely to be wise?

      • Anonymous

        Kurt, I agree that the question is largely the same regardless of how it’s asked. I don’t think there’s any simple privileging of the status quo in asking the question. 

        There is no argument presented by me above so I don’t know which “same argument” you’re suggesting. 

        It does seem to me that you’re suggesting that in a case where someone or some group feel some cost is imposed upon them that the status quo implies an existing right for those whose actions are creating the felt cost. Based on that you seem to think the legal system we have in the USA is not able to address such torts and so regulation or legislation is required to define the right that the legal system, or some other government agency, will enforce going forward. 

        I’m not sure that is the case, nor am is sure that should be the case but arguments to such approaches was what I was hoping to hear back.

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  • http://pulse.yahoo.com/_HSKXAWKADVEXMD6SG7DRBB7H3I Silly Wabbit

    I’m a reasonably bright person (but not exceptionally bright). I’ve read most of the classics of political economy from Quesnay to Marx, a good deal of Hayek, some Konkin and a smattering of Rothbard. After all of this, I have almost idea what a “market” or a “free market” is supposed to be. 
    How do we know if we have a “free market”? Can it be quantified and measured? Is it a binary thing-markets are either free or unfree? or is the relationship more continuous? Or perhaps there are multiple indicators of market freedom or unfreedom and we could conduct a composite measure of the “freeness” of markets. 
    I’m not trying to be an a*s but the more I read libertarian literature (libertarian in the post 1960s US sense) I don’t get any clearer picture of what a market or a “free” market is or is not. The pat answer is that a “free” market has no government “intervention” but this explanation implies a simplistic point of exchange understanding of govenment’s role in economic outcomes. 
    Again not trying to be a jerk but a concept that seems so central the the intellectual-ideological edifice on libertarianism needs a rigorous definition. 

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  • Bongstar420

    Why does it have to be legal to allow rich people to have more say in anything at all? A free market would allow individuals to use capital to control society directly. Now, such feats are more and more indirect because we put “regulations” between the rich and the government/public.

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