Wednesday, January 28, 2015

(Related update): Regulating Away Regulation

Related update: this topic must be in the air at the moment -- OLS rocks star economist Mark Perry posted yesterday on the power of the consumer to regulate producer behavior. Here's my favorite part of Perry's must-read post:
Further, we typically assume that “greedy” behavior is practiced exclusively by business owners and corporate executives, and never by consumers. But consumers, especially when spending their own money on goods and services for themselves and their families, are frequently the very epitome and apotheosis of greed. As Mises observed, “With them [consumers] nothing counts more than their own satisfaction,” and for that we should be thankful. Because in a market economy, the ruthless consumers provide the discipline that guarantees that producers will operate efficiently and offer the best products and services at the lowest prices.
Original post 1/19/15: In a terrific article published at the FEE website recently, Howard Baetjer, Jr. makes the excellent point that, in terms of regulating goods and services, a false dichotomy is the dominant narrative: either the government protects us via regulation, or there will be little/no regulation at all. This powerful anti-capitalist view could not be more wrong, Baetjer asserts. There's another, much more powerful regulator -- the market mechanism itself.  Here's an excerpt from this highly recommended article:
We never face a choice between regulation and no regulation. We face a choice between kinds of regulation: regulation by legislatures and bureaucracies, or regulation by market forces — regulation by restriction of choice, or regulation by the exercise of choice.
There is no such thing as an unregulated free market. If a market is free, it is closely regulated by the free choices of market participants. The actions of each constrain and influence the actions of others in ways that make actions regular — more or less predictable, falling within understandable bounds.
Government regulation is not the only kind of regulation; market forces also regulate. Recognizing this, communicating it to others, and getting the awareness into public discourse are key steps toward greater economic liberty.
Baetjer also makes the insightful point that there is a negative relationship between government regulation and the ability of markets to regulate, but you'll have to read the article to learn about this important aspect of regulation.  Great article. [ht: Mark Perry]