Disguised Struggle

Post #1034

In this prior post, it was discovered that crowds don’t stay stupid, which is important for any sort of attempted rational justification of government regulation. If “crowds stayed stupid” — then it might be important and needful to have expert technocrats and enlightened bureaucrats making our personal decisions for us.

Any economic regulation is a restriction on the decisions that you will be allowed to make, something which — by definition — hampers the potential wealth creation of human beings. If people never learned, then a tradeoff would exist and it would be important to restrict wealth creation a little bit, for paternalistic regulatory protection.

Besides the fact that people learn, other factors against regulation schemes are the monitoring costs associated with them, the compliance costs associated with them, and the fact that you restrict the available “points of failure” — often down to just one.

A Thousand Points of Failure

In the wrecker/tow-truck industry, with a single chain, you could tow a car — but each individual link in the chain could fail on you. By just doubling the chains used, you cut the risk of failure by more than half (each link of each chain has half the force applied to it). By tripling them, you will almost never have a chain failure.

In free markets, people are always trying new things and checking for success. While on the lookout for success — because it is profitable for individual people to personally pay whatever monitoring costs there are so as to remain on the lookout — people, individually, will notice failures. Then they communicate it to others.

When experiments in production and interchange are decentralized, a critical threshold of tiny and dispersed failures could guide the market away from disasters. Even more guidance occurs when a failure is noticed by a public persona, someone that many people think that they can relate to.

When a government bureaucrat “gets it wrong” then that is a single point of failure and it is not typically the bureaucrat who pays for the mistake, but everybody else. But if markets regulate themselves by way of witnessed failures which then get communicated to others, then what argument is there for government regulation?

What about times in history when companies sold radioactive material to people?

This ad is for a French face cream with contained radioactive thorium and radium. Exposures were pretty low, so it isn’t clear how many users were harmed. It turns out that relying on the government for regulation didn’t help — but bad press did help. When the public figure, Eben Byers, died from drinking radium drinks, things changed.

Radi-Thor, which Eben Byers drank every day for 3 years in a row, was a radioactive energy drink marketed as “Certified Radioactive Water.” The 1932 Wall Street Journal headline — that intimated the gruesome death of Eben Byers having bones that were necrotizing from all of the embedded radium — went exactly like this:

“The Radium Water Worked Fine until His Jaw Came Off.”

After that, the market mechanisms took over, and radium energy drinks were no more:

But again, if markets are so good at policing themselves, then why have government regulation? To get the answer to the apparent conundrum, you have to look to Austrian economics:

Ludwig von Mises reveals that people will free-ride off the government, sometimes called rent-seeking and sometimes called graft, where they lobby for harsh regulations on people — because they just so happen to be in a peculiar position to extract benefit after the harsh regulations are imposed. But this method has to remain “disguised.”

Disguised Struggle

Because people would get very angry if they discovered that government regulations originate by some selfish misanthrope seeking unearned and unjust gain — careful narratives are put together about how it is that regulation was really needful, and how it is that regulation was really helpful, in order to disguise the “corporate capture.”

Here’s a quote from Adam Smith:

“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.”
—The Wealth of Nations

Notice how the insiders are called “the dealers” and how they concoct new ideas about regulation for the sole purpose of deception and oppression of others. This leads Adam Smith to warn us to remain suspicious of all regulation. Keep in mind how it is that this was written in 1776 — and things are no better now and very likely worse.

An example of wanting harsh penalties imposed on your industry, because you are in a peculiar position to profit off of your competitors becoming hampered by the government, is the oil company “windfall profit tax” of Jimmy Carter:

Notice how Big Oil was behind the tax, but how the “[s]maller oil companies and wildcatters” were the ones who were “against the windfall profits tax.” After the government tax had harmed the smaller oil companies, then the big ones bought them out. But people were sold the false narrative that the tax prevented the effects of greed.

The Big Oil Fat Cats laughed all the way to the bank, because the tax narrowed their field and forced buyouts. Other instances which were not in need of regulation, and where the markets were working just fine without the regulation, would include the dangerous labor union riot of 1892 at Andrew Carnegie’s Homestead Works steel plant:

As you can see, the lowest paid workers there, the day laborers who worked without job skills, earned 14 cents an hour for a 10-hour workday. While the average wage of skilled labor plus unskilled labor would be more than twice that much (more than 28 cents an hour). But that means that Andrew Carnegie was not underpaying them:

The harms from the labor riot speak to a distinction between law and regulation. Labor regulation was not needed for Carnegie, but labor did break the law. Another instance when regulation was not needed — because the market was able to regulate itself just fine — was 9 years later, when cocaine was voluntarily removed from Coca-Cola:

Another instance when regulation was not needed — because consumer advocacy groups were doing a better job than the government ever could — was 52 years later, when Consumer Reports blew the whistle on cigarette smoking and lung cancer:

Outfits like Consumer Reports spring up like weeds when there is a free market, and they scour the products that people take in order to come up with the next new story to tell. In the process, they keep us all safe and protected from the harm which might have been caused if people’s heads had stayed stuck in the sand, like ostriches.

The upshot is that crowds don’t stay stupid, and government regulation is not needed.