Friday, November 07, 2008

Governmental role in Free market - part #1

I got this message from someone bringing up the old "too much" / "too little" regulation argument. Seemed like a good topic to rant about today and my perception of what is going on in this situation.
fgrod writes:
Democracy and the free market system only works when you have a protective body in place to stem corruption and cheating. Wall Street and China continue to break the rules and plunder the system with gov't doing nothing about it.
With regard to stemming corruption and cheating, it reminds me of the old Latin saying "Sed quis custodiet ipsos custodies?" or better known as "Who watches the watchers?"

Free Market, according to Smith is without monopolies naturally. a monopoly requires total control over a supply line... which is usually impossible, impossible without government intervention, intentional or otherwise.

What the government should do is manage certain acceptable standards; limits that encourage competition, or standards that say what people don't have to compete with. Preferably, I would like to see standards bodies that rate companies and products to inform people about quality and such.

I think education is the key. the problem with trying to control things behind the lines rather than letting consumers make informed decisions, consumers get more apathetic as they trust the government to take care of everything for them, and voluntarily get dumber.

One example: I like the V-chip. FCC says what kind of rating a show / station gets based on the content. Consumers can choose to use the v-chip or not, and automatically filter what they want to be able to watch, or let their kids watch. HOWEVER, any kind of filter on what can and can not be put onto certain types of mediums is wrong, imo. Further, allow stations to put whatever they want, and not get ratings, or use an open system that allow organizations to develop their own rating systems. Then consumers can pick their own standards body, and pick which rating systems they like and block content as truly as they wish, with as much assistance to make informed decisions as possible.

Let the free market take care of the rest. Free Market Theory says the best stations, the best chips, the best standards body, and the best shows will come out on top as consumers are free to make those decisions. Even let tv makers decide the chips they want, and what is on or off by default. The best will win out with freedom.

Free Market Theory also says that, by contrast, the equilibrium for which that would reach naturally CAN'T be figured out by a bunch of politicians arguing about it. The market will figure it out better and faster than anyone. Especially when technology continuously changes.

I personally think the government can and is a central location for people to complain about the world. customer feedback is more important than anything. According to Mesis (The Theory of Money and Credit), government can merely be a player in the market (ok, a bit more, but beyond the scope of this rant). If the government has all the best knowledge of what people want, they can use or sell the ideas that will produce the best products that will dominate in the market that other very smart people will have to compete.

What I see is people calling bad regulation "too much regulation, leave it alone" or for the same thing "it is too little regulation / too many loop holes". There isn't "too much" or "too little" regulation. Further, I can't remember who said this, but I agree "There is no such thing as a loop hole. It either is the law, or it is not the law". Loop holes are either people disagreeing with the law, or natural the natural result of trying to control something that can't be controlled resulting in "unintended consequences". One such example: High taxes + world market = take business elsewhere. How those businesses go elsewhere isn't the issue, be it their money, their headquarters, their labor, their call centers, whatever. Government can't break natural laws: If the government does not provide a competitive advantage to encourage international corporations to come to the United States, they won't.

I feel we cripple businesses, tweaking and poking and making up reasons to change how much money we won't take away from them without any real thought to the big picture, social policy, or much thinking period. I think rather than poking at individual products or even industries, we can have guidelines and standards bodies that inform customers about businesses.

Speaking metaphorically is difficult, so let me use a real example of some "bad regulations and loop holes. In California, there was recently a proposition for people to vote on, proposition 2. This was a law that was intended to curtail animal abuse, particularly by requiring a minimum amount of space for chickens and nursing / pregnant pigs. Good idea, bad law as written. This law only affected California farmers. It non nothing to regulate consumers or importers. The pro argument was that California wasn't going to tolerate mistreatment of these animals. The con was the increased costs for space and unfair competition. What I think would have been better to help everybody would be either 1) require labeling to inform consumers about whether certain farms meet a certain standard OR for those that like a more aggressive solution, require that stores must only sell eggs that meet those regulations, and possibly add the same requirement for anyone in California to sell eggs. This makes the playing field even, and means that everybody is supporting fair treatment of animals, not just California farmers.

Only labeling eggs and informing consumers that this products meets certain standards I think falls under the "less regulation" catagory, While the flat prohibition is "more regulation". Prop 2 is just bad regulation that doesn't really address the problem in a way that I feel has any relationship with what consumers want, or have any business really voting on. Prop 2 is just tweaking, and not something that I think moves us towards being a more enlightened society about the treatment of animals.

Free market works... but how would anyone know living in the United States when we really have nothing like it here. I am not saying all the regulations are bad, I just don't think the types of policies we put in place encourage free market. Best example? look at the recent "rescue / bail out" plan. Even aside from the heart of the bill and its intention, look at all the tweaks that make up 90%+ of the bills text and you can see it could only be the result of guessing and buying votes. The wooden arrows, for example, after some investigating totally made sense... but only in a place where our taxes are so screwed up could a problem like the one addressed by that section of the bill need passing. Further, it is only a patch, it doesn't address the heart of this giant mess we call a tax code that can not be understood by anybody in its entirety. Many argue that not everyone needs to understand it... but is that really justification for it to be so convoluted?

A quick note, I support the Fair Tax. May there be problems with it? Quite possibly! I say it is a great start, and that it addresses the issue from the right direction. Now it is just a matter of details. It just needs to be the RIGHT details. The only place where any tweaking that might be industry where what definition of "consumption" is will need some definition, like gambling (which has already been addressed).

Also, China is a sovereign nation. When our irresponsibility makes them rich, that doesn't mean they are cheating or taking advantage of us. If we don't want what they have to offer, stop buying it from them and go elsewhere. That is what market is all about. Now while this may sound a bit harsh, nobody forced us to become so dependent on foreign oil. We did that all on our own. Now, if we can't live without buying a certain amount, while that makes them lots of money, that doesn't mean it is all their fault.

So as I started with, this isn't about cheating the system through loop holes, over regulation or deregulation, it is about BAD regulation written by people that would like to control their industry, and congressmen too gullible or compromising, or down right stupid to help their proposals become law instead of doing their job.

And the reason that happens is a much bigger issue that I am not going to go into. I will say, however, we need to take some responsibility for electing these idiots. And as I have mentioned before, in any system with which you are not informed, you are a slave. It is also that ignorance that makes traditional democracy such a failure, because individuals are so easily scared and manipulated. Look at prop 8, drug war, IP war, war on terrorism. In this way, they are all the same.

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