Free Market Regulation

Darian Worden on how the market regulates business and how this type of regulation is reduced when government regulation is expanded.

The only thing I would have to add (cuz I’m a picky bastard) is to Long’s discussion of deregulation. There is regulation by government, and there is regulation by the market. The former operates through coercion and political favoritism. The latter operates through competition, true consequences, free unions, and independent product testing. The former can only be increased at the expense of the latter. Thus when government regulations are increased, free market regulation necessarily suffers, and it is in this way only that “deregulation” can be blamed for economic troubles. When libertarians say that we are in favor of deregulation, we run the risk of appearing to want businesses to get away with anything, when we are actually presenting the best possible restraint on business: the power of the market.

Worden is responding to this quote from Roderick Long on deregulation, which is also interesting.

In a free market, firms would be smaller and less hierarchical, more local and more numerous (and many would probably be employee-owned); prices would be lower and wages higher; and corporate power would be in shambles. Small wonder that big business, despite often paying lip service to free market ideals, tends to systematically oppose them in practice.

So where does this idea come from that advocates of free-market libertarianism must be carrying water for big business interests?

FILED UNDER: Economics and Business, Government,
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. DL says:

    What is fascinating is that liberals fully understand the market place when it’s applied to nature. More rabbits bring more foxes until they die off from predation and then the foxes get rabies and die off only to start the cycle all over again. It is reality and the balance of free choice -they think the government needs to control economic nature and man (who is miraculously outside of nature) needs to keep his greedy hand off of it!

    Somewhere in all this there’s a sixties song about all you need is love or some such silly nonsense.

  2. odograph says:

    Liberals? This was George Bush’s America.gov speaking:

    In time of recession, the Fed can inject more money into the economy, and thereby stimulate it, by lowering interest rates. In times of inflation or asset-price bubbles, it can raise interest rates and adopt other measures with the effect of taming inflation and protecting the integrity of the financial system.

    The Fed alone cannot dictate the course of the economy over the long term, but it can smooth out the peaks and valleys of the business cycle.

  3. legion says:

    So where does this idea come from that advocates of free-market libertarianism must be carrying water for big business interests?

    Where? From the current economic collapse we’re in right now, buddy. The “free market” only works if the participants in that market actually obey the rules and laws laid down (by the government, I might add) to control and regulate the market’s activities. In examining our current catastrof*ck, is it clear that major banking, lending, and ratings institutions completely ignored those regulations and blatantly lied – to their clients, customers, colleagues, and regulators – about the safety of their investments and the value of their collateral.

    They lied because there were no consequences for lying. Because the regulators weren’t going to enforce any penalties for lying. Because _all_ of the institutions were all playing the same game, so nobody wanted to blow the whistle.

    There _must_ be government regulation, because the market will only regulate itself so long as it’s more profitable to obey the law. When it’s not – because the rules aren’t enforced – the entire system collapses. I’m not saying the market should be completely government-controlled & run, but neither can it be left completely alone, and that’s what’s been done since the late ’90s.

  4. charles johnson says:

    In a free market, firms would be smaller and less hierarchical, more local and more numerous

    That might be the dumbest thing I’ve ever read.

  5. Steve Plunk says:

    I have used the example of Walmart to support the idea of less regulation being beneficial to small local firms.

    Local companies do not have the resources in terms of legal and planning staffs to expand as needed while Walmart can come in with an army of both and the cash to ensure all regulatory hurdles are overcome and put in a big box store that will put the little guy out of business. If that little guy could have just built on without the hassles he might have had a chance to compete or even dissuade Walmart from coming.

    The current crisis is not a failure of the free market as much a failure of government regulations trying to replace the free market controls. Many companies met the letter of law and ignored the spirit of the law since that is what government requires. The free market requires companies to pay attention to both. If so many law were broken and ignored where are the Board members under indictment?

    Reliance on government to resolve all problems has led to neighbors not talking things out and instead just turning complaints over to authorities with power. Corporate America is now doing the same sort of thing by only paying attention to legal details instead of watching out for it’s customers. Customers have relied on government to ensure corporation are following the law and not realizing it takes more than that to protect them.

  6. Dantheman says:

    “In a free market, firms would be smaller and less hierarchical, more local and more numerous

    That might be the dumbest thing I’ve ever read.”

    I’m going to agree with Charles Johnson (and for my next trick, I will make this pig sprout wings).

    To the contrary, in a free market, national monopolies would grow. Just look at the history of pre-regulation but post-Indutrial Revolution America (roughly 1870-1910).

    “So where does this idea come from that advocates of free-market libertarianism must be carrying water for big business interests?”

    Because both libertarians and big business interests advocate the same measures. Duh.

  7. Franklin says:

    “In a free market, firms would be smaller and less hierarchical”

    Proof or some sort of explanation is needed for the above statement, because I can think of a buttload of counterexamples off the top of my head.

    On the other hand, nevermind the explanation. Just blame the misunderstanding on stoopid lieberals and everyone can just agree like a bunch of bobbleheads.

  8. Franklin says:

    OK, after reading the actual links (like we were supposed to do in the first place), Long’s quote makes a lot more sense in context.

    He cites a list of government priveleges given to various corporate entities, which tend to … wait for it … favor bigger corporations. So he seems to be against lobbyists and corporate welfare: hooray, something the left and right can agree on!?

    He still makes a bit of a leap from his list to the above quote, failing to explain the obvious historical counterexamples (and maybe they can be explained, I don’t know). But at least one can understand the statement’s connection to reality now.

  9. Franklin says:

    While Long’s article is actually pretty good, minus the logical leap described above, I find Worden’s analysis trite and over-simplified.

    “Independent product testing” – we wouldn’t have this at all if people didn’t contribute to Consumer Reports. And try as they might, even THEY develop unintentional biases over time (unless you truly think that every American car is a POS).

    And “true consequences” often take way too much time. Three centuries or so of industrialization demonstrates that the free market has yet to come up with a way to control pollution (yeah, yeah, libertarians’ solution is private property rights). And what about the folks cookin’ the accounting books? And insider trading? Etc., etc. Sure, some of this stuff gets “solved” eventually, years after innocent investors have lost their retirement savings with no hope of recovery.

    There’s certainly a balance here, especially towards regulation that is not biased towards certain companies, but things are more complicated than he makes them out to be. Consider the fight over the broadcast spectrums. What’s the free-market solution? Everybody independently picks a frequency and hopes they don’t get interference?

  10. legion says:

    If so many law were broken and ignored where are the Board members under indictment?

    “Too big to fail” == “too rich to indict”.

    Reliance on government to resolve all problems has led to neighbors not talking things out and instead just turning complaints over to authorities with power.

    That’s the problem with Grover Norquist-style, neo-conservative, “drown gov’t in a bathtub” style thinking: There is a middle ground between _no_ government regulation and Soviet-style central control. Just because one extreme has been proven a failure doesn’t meant the other extreme is Utopia. In fact, one might think the opposite had been proven as well…

  11. Bithead says:

    “In a free market, firms would be smaller and less hierarchical”

    Proof or some sort of explanation is needed for the above statement, because I can think of a buttload of counterexamples off the top of my head.

    AT&T/Bell

    Oops. Not exactly a counter-example, huh?