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Freedom's Phoenix

We Need More Regulation

November 15, 2008 - 12:00am
Nick Coons by Nick Coons

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Many have claimed that our current economic situation is because we lack regulations. They say that businesses were too free to do what they wanted, and experienced no negative consequences for their bad decisions. It is so commonly spoken, "The problems of today are due to de-regulations," that it's just accepted without question.



Well guest what; I agree.  I am in favor of more regulations on the economy, and even stronger than what our government is proposing.

People who know me and understand what my positions are might be scratching their heads and thinking, "huh?"

This is because we think that government regulations are the only regulations, and therefore removing a government regulation is to de-regulate.  But free market regulations are far more powerful at regulating business conduct than government regulations.  For instance, businesses are regulated by their customers, because poorly-performing companies will lose customer to their competitors.  In this way, the free market imposes the strongest form of regulation; bankruptcy.

Given that regulations are imposed in many ways, and that government regulations are generally ineffective, the correct way to think about regulations is:

  • The current downturn is a free market attempt to regulate bad business practices, and the current bailout is a form of government de-regulating such that it allows bad businesses to hang around.
  • Bankruptcy is the strongest form of regulation.
  • Bailouts are the strong form of de-regulation.

Customers are attempting to regulate businesses like many in the automotive industry by not buying their products.  The government is de-regulating these industries by handing them cash so they can stay in business while ignoring signals sent by the public.  In a free market, these companies would be required to re-organize to meet the demands of the public, or be purchased by other companies who can manage them better in order to serve the public.  But bailouts allow companies providing poor products and services to continue to operate.

And finally, it is too often argued that these businesses are too big to fail.  But big businesses have failed in the past, and the country's economy has not come to a stand-still because of it.  Montgomery Ward, which began in 1872, failed to efficiently meet the demands of its customers and was forced to close down its chain of retail stores and catalog in 2001.  Four years later, it reappeared as an online entity.  Pan Am, a major airline, collapsed in 1991, and other airlines were there to pick up the slack.  Businesses fail, are reorganized, or are replaced by other more efficient organizations that can meet the demands of the public.  If GM, Ford, and Chrysler fail, the demand for vehicles will still exist, so their assets would likely be sold to another automotive manufacturer, and that company would need to hire experienced personnel to continue running the factories.

We must get Congress out of the way and out of the market, so that the American people can regulate companies by deciding whether or not we want to do business with them.



Related Content:

Tariffs and Economic Favoritism - Austin Raynor
The Invisible Hand of the Market vs. the Middle Finger of the State - Nick Coons
The High Cost of Regulation - Richard Sutton


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