Which Is Worse: Regulation Or De-Regulation?
- From: Bret Ludwig <bretldwig@xxxxxxxxx>
- Date: Wed, 30 Jan 2008 12:56:05 -0800 (PST)
Which Is Worse: Regulation Or De-Regulation?
By Paul Craig Roberts
"Libertarians preach the morality of the market, and socialists preach the morality of the state. Those convinced of the market's morality want de-regulation; those convinced of the state's morality want regulation.
In truth, neither seems to work.
Consider for example the rules against collusion. The political left
imposed this regulatory rule in order to prevent monopoly behavior by
companies. One consequence has been that, unable to collude, firms are
slaves to their bottom lines. In order to compete successfully in the
competitive new world of globalism, firms have curtailed pensions and
health insurance for their employees.
Or consider the regulation of new drugs, which drives up costs and
delays remedies without, apparently, doing much to improve safety.
Or the fleet mileage standards that regulation imposes on car makers.
These regulations destroyed the family station wagon. Families needing
carrying capacity turned to vans and to panel trucks. Car makers saw a
new market and invented the SUV, which as a "light truck" was exempt
from the fleet mileage regulations. The effort to impose fuel economy
resulted in cars being replaced by over weight fuel-guzzling SUVs.
On the other hand consider the current troubles resulting from banking
and financial de-regulation. The losses from this one crisis greatly
exceed any gains from de-regulation.
Or consider the plight of the de-regulated airlines and deterioration
in the quality of air service. Or the higher costs of telephone
service and the loss of a blue chip stock for widows and retirement
funds that resulted from breaking up AT&T. Or the scandals and
uncertainties from utility de-regulation which permits non-energy
producers like Enron to contract to deliver electric power.
Economists claim that de-regulation results in lower prices. Cheap
advanced fare airline ticket prices are cited as evidence. What these
economists mean is that the fares without stopovers are cheap to
people who can plan their trips in advance. Other passengers subsidize
these advanced fares by paying four times as much. Moreover, de-
regulation has created bottom-line competition that has lowered
service, removed meals, and results in periodic bankruptcy, thus
forcing the airlines' creditors to pay for the low fares. Pilots,
flight attendants, and aircraft maintenance crews subsidize the lower
fares with reductions in salaries and pension benefits. Are
bankruptcies and mergers leading the industry toward one carrier and
the re-emergence of regulation?
Consider the fall-out from trucking de-regulation. As in the case of
the airlines, the claim was that more communities would be served and
costs would decline. But which costs? De-regulation made every minute
a bottom-line item. Trucks became bigger, heavier, and travel at
higher speeds. Highway safety suffers, and highway maintenance costs
rise. The courtesy of truck drivers declined. When trucking was
regulated, truckers would stop to help people whose cars had broken
down. Today that would throw off the schedule and threaten the bottom-
line.
Economists dismiss costs that aren't included in price. For them the
cost that matters is the price paid by consumers. The truck that gets
there faster delivers cheaper to the consumer. The myriad ways in
which people pay the price of de-regulation are not part of the price
paid at the check-out counter.
Economists also say that off shoring lowers Wal-Mart prices, thus
benefitting the consumer. They don't say that by moving jobs abroad
off shoring reduces the job opportunities and life-time earnings of
the US labor force, or that it wrecks the finances of the laid-off US
workers and destroys the tax base of their local communities. None of
these costs of off shoring enter into the price of the offshored goods
that Americans purchase.
Privatization vs. socialization is another dimension of the conflict.
Those who distrust the power of private ownership put faith in public
ownership, and those who distrust the power of the state find freedom
to be imperiled in the absence of private ownership. 20th century
experience established that public ownership is economically
inefficient without producing offsetting gains in public welfare.
Those in charge of nationalized firms live well both at the expense of
taxpayers and consumers.
Nevertheless, privatization can be pushed too far, and it has. As a
result of the upfront cost of building prisons and their high
operating costs when in government hands, prisons are being privatized
and have become profit-making ventures. Governments avoid the
construction costs and contract for incarceration services. Allegedly,
the greater efficiency of the private operation lowers the cost.
Private prisons, however, require a constant stream of prisoners. They
cannot afford to have vacant cells. If incarceration rates fell,
profits would disappear and bankruptcy would descend upon the owners.
Thus, privatized prisons create a demand for criminals and, as a
result, might actually raise the total cost of incarceration.
The US--the "land of liberty"--has the largest prison population in
the world. With 5 percent of the world's population, the US has 25
percent of the prison population. The US has 1.3 million more people
in prison than crime-ridden Russia, and 700,000 more prisoners than
authoritarian China, which has a population four times larger.
In the US the number and kind of crimes have exploded. Prisons are
full of drug users, and the US now has "hate crimes" such as the use
of constitutionally protected free speech against "protected
minorities." It is in the self-interest of prison investors to agitate
for yet more criminalization of civil liberties and ordinary human
behavior.
The case for de-regulation is as ideological as the case for
regulation. There is no open-and-shut case for either approach. Such
issues should be decided on their merits, but usually are decided by
the reigning ideology of an epoch or by powerful interest groups.
The Bush regime has de-regulated the government in the sense that the
regime has removed constraints that the Founders put on executive
power. This was done in the name of the "war on terror."
Simultaneously, Bush has increased the regulation of our travel and
communication, spying on our Internet use and specifying to the ounce
the quantities of toothpaste and shampoo with which Americans can
board commercial airliners.
Crises destroy liberty. Lincoln used the crisis of states withdrawing
from the union to destroy states' rights, an essential preservative of
liberty in the minds of the Founders. Roosevelt used the Great
Depression to destroy the legislative power of Congress by having that
power delegated to federal agencies. Bush used 9/11 to assault the
civil liberties that protect Americans from a police state.
Perhaps we have now reached a point where both libertarians and left-
wingers can agree that the US government desperately needs to be re-
regulated and again held accountable to the people.
Paul Craig Roberts [email him] was Assistant Secretary of the Treasury
in the Reagan Administration. He is the author of Supply-Side
Revolution : An Insider's Account of Policymaking in Washington;
Alienation and the Soviet Economy and Meltdown: Inside the Soviet
Economy, and is the co-author with Lawrence M. Stratton of The Tyranny
of Good Intentions : How Prosecutors and Bureaucrats Are Trampling the
Constitution in the Name of Justice. Click here for Peter Brimelow's
Forbes Magazine interview with Roberts about the recent epidemic of
prosecutorial misconduct."<<
http://www.vdare.com/roberts/080129_regulation.htm
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