Sunday, February 28, 2016

Nonsensical Regulation

In "Hypocritical Government" I discussed the hypocritical nature of Maryland gambling laws, as well as their essentially nonsensical justifications.  This sort of nonsense is hardly unique. For example, the assumption behind gun bans, many of which prohibit buying handguns until one reaches 21, is that younger individuals are likely to lose their tempers and shoot others. Yet, much younger individuals, enlisted in the military, are entrusted with automatic weapons, explosives and worse. They don't receive any special screening, we do not test that they are not prone to fits of rage. We simply trust them, and, for the most part, they behave. So, why do we assume their fellows, out in the world at large, are mysteriously more prone to shooting sprees?

In fact, most regulations make just as little sense, especially when we look at the many exceptions. When we view the laws reasonably, we see the nominal justifications are either simply rationalizations for state revenue schemes, or subterfuges to eliminate something the state finds unacceptable, but cannot state the real justification1.

To draw on my earlier essay for an example, many states ban gambling, arguing "other people" -- certainly not the politician, and not the voters listening to him, just "other people" -- are likely to gamble too much, being too weak or foolish to control themselves, and thus gambling must be outlawed. Which makes little sense when such states run daily lotteries, support gambling at horse tracks, run a keno game drawing every 5 minutes, allow exceptions for charities, and even allow a limited number of licensed casinos, or gambling river boats. If gambling is so dangerous, how can this be justified? As I wrote:
Now if gambling is dangerous, a siren song for the wrong sort of people, inevitably crushing them upon the rocks of bankruptcy, what difference does it make who runs the games and for what purpose? If we ban gambling because it is harmful, how does it become benevolent, or at least innocuous, when the money goes to charity? That would be akin to allowing a YMCA crack house, or permitting the Girl Scouts to perform murder for hire. If it is dangerous, it is dangerous, and if that is the logic by which a ban is justified, then the motive of those operating the dangerous activity makes no difference.
Yet gambling is hardly unique in this regard. Think of business licensing2. Nominally, this is intended to prevent unskilled or unscrupulous practices in business. But then you look at particulars. Do people who braid hair really need to attend barber college and learn the bones of the skull? Something a four year old child successfully masters hardly seems likely to damage anyone, and certainly does not require extensive anatomical knowledge. Or worse, how about peddler's licenses. In Maryland, the extensive background check involves ensuring your check clears. How, precisely, does this prevent harm? Or the requirement that people operating as mortgage brokers -- that is people who connect lenders with borrowers -- place a half million dollar bond. First, they cannot do much harm, as they are not actually lending money or holding instruments, they simply collect a fee. Second, if they could somehow do harm, the bond deposited, given the economy today, would pay for maybe two fraudulent mortgages at best. In other words, it is too much to allow entry into the market, but too little to pay for any harm, should it happen. Or, to make my beliefs more clear, it exists solely to keep too many competitors from troubling established firms3.

Then again, even regulations which are popular and make few exceptions seem to make little sense when viewed objectively. As I argued in "Gun Control, The FDA and Regulating the Law Abiding", the FDA process is a waste of time and effort, as well as potentially harmful. After all, established drug firms have no desire to release a dangerous drug, or one that does not work, and do lots of research to prove their drugs4. They have a lot to lose by releasing a dangerous or ineffective drug, and it would be silly to spend years building up a reputation worth potentially billions to ruin it for a "quick killing" of a few million or so. And smaller, newer firms, the ones who might be tempted, are less likely to be acceptable to doctors without a lot of research, including review by doctors not involved with the company. So, again, the market makes it unlikely dangerous or ineffective drugs would be any more common were the FDA to vanish tomorrow5.

But in this case, there is a worse problem. In the examples above, of course, there was some harm, licensing is a needless cost, and often keeps competition limited, raising prices. Gun control may even cost lives by making self defense more difficult for many. But the FDA can do much more harm, and has every incentive to do so. You see, because of its mandate, the FDA overemphasizes the "safe" aspect. After all, if a miracle drug is never released, who will know? But if a drug is released that kills people, the FDA will be blamed and some regulators will find themselves unemployed. Thus, there is every incentive to overestimate risks and underestimate benefits6, leading to the FDA often banning drugs that doctors and patients would consider acceptable risks. But, because of incentives built into the system, drugs are banned, and event hose approved are often tied up in terribly lengthy testing procedures, resulting in untold suffering and death, all to provide supposed safeguards a free market would provide without intervention7.

The list could easily go on and on, but I will cut it short. Instead let me end by making a simple argument. In most cases, the market has incentives for businesses to behave well. In a few cases, criminals can try to make a quick buck, but most of the time regulations don't deter those criminals either, as they are criminals. In short, the same arguments as are used for gun control apply here. Most people are good and responsible, and enforcing basic laws on theft, force and fraud would deter the rest in most cases. Regulations provide no additional security, simply transferring responsibility for decision from individuals deciding for themselves to bureaucrats deciding for everyone, often with incentives producing distorted outcomes. So, why do we think this expensive, dangerous and stifling one-size-fits-all solution makes us safer in any way?8


1. Given that the justification for many liberal policies, such as food bans, is "we know better than you what you should do", it is not surprising that this is the case. (See "Liberalism, Its Origins and Consequences", "Why Freedom Is Essential", "Hard Cases Make Bad Law", "Harming Society", "In Loco Parentis", "Government by Emotion", "Missionary Zeal and Human Discord", "Humility and Freedom", "Smoking Versus Sex -- Want and Need Take Two", "Every Kid Likes Hot Dogs", "On the Side of the Angels... Yet Completely Wrong" and "Signs, Signs, Everywhere a Sign".) Then again, the right largely supports drug bans and other laws, so the right is not free of also thinking they know best. Sadly, many conservatives do not see the contradiction in denouncing the "nanny state", yet enacting "public morals" laws based upon the idea that their ethics are superior to those of other people. (See "Guns and Drugs" and "Another Look At Exploitation".)

2. See "Business Licensing and Regulation", "Anti-Business Businesses", "Bad Economics Part 11" and "Bad Economics Part 19","Denying Reality", "When Help Hurts", "The State Versus Universities", "Help and Harm", "The Basics", "Employment A to Z", "The Cart Before the Horse, or, Some Thoughts on the Iron Law of Wages", "The Sado-Masochist Society, or, Would Primitive Communism Work?", "Socialism, Communism, Democracy, Authoritarianism and Freedom - Is It Possible to Have a Non-Authoritarian Socialism?" and "Did Deregulation Fail?".

3. Interestingly, it actually became a source of revenue for those existing firms during periods when refinance was popular. Smaller firms, unable to pay the bond, would agree to give a cut to an established broker in exchange for allowing all the small firm employees claim to be contractors for the established broker. In other words, it provided no more protection, less even as a single bond covered more people and transactions, yet gave existing firms a nice revenue stream.

4. People may argue from the past, but many "abuses" amount to little more than not revealing a single side effect, while reporting many others. In a few cases it may have been intentional, but those were often to get around overly paranoid FDA rules, as I will argue shortly. In many, it was simply an accident, and, in most cases, it was hardly a massive threat, more an error along the lines of "heart attack risk was 0.1% not 0.01%" or something similarly small. When we go farther back, it becomes more misleading, as life in general was more risky in the late 19th and early 20th century, so judging them by our standards is sure to mislead. (See "Mistaken Perceptions of the Industrial Age", "Child Labor and the Industrial Revolution","Why Regulation Makes So Little Sense") I shall have to discuss this again in more detail in a future essay.

5. There is some added distortion of the present market due to the quasi-cartel status brought about by prescription laws, which allow for some amount of abuse due to limited competition -- see "Medical Regulations" and "Medical Regulation II".

6. In fact, they really need not consider benefit at all, except for ascertaining there is some. Since no one knows what is being submitted, and benefit is largely speculative, the public is unlikely to consider banning even the most potentially beneficial drug a problem so long as the FDA can provide evidence of some harm. Thus, the FDA has a tendency to decide based upon grossly underestimated benefits. See "The Problems With "Safe and Effective""and "The Problem With Regulation".

7. No, the free market is not perfect, but neither is the FDA, as I have shown. The difference is, the free market would rely on the judgment of manufacturers, doctors and patients, while our present system relies on bureaucrats with a built-in bias towards denying approval. (See "The Free Market Solution", "Consumer Protection", "Really Silly Fears", "Inspections, Regulations and Bans", "Paradoxical Outcome", "Government by Emotion", "The Bureaucrat Who Cried Wolf", "The Problems With "Safe and Effective"", "Oven Mitts and Safety Regulation", "Consumer Protection, Cartels and the Failure of Regulation", "The High Cost of Protection", "Warnings and More Warnings - Another Look at Consumer Protection", "Two Sided Processes and Claims of "Unfair" Outcomes", "GMO Revisited - As Well as Hormones, Soy, Phytoestrogens, and a Host of Other Food Scares", "Fighting the Wrong Fight", "Fighting the Wrong Fight, Part II", "How Wages Work", "Some Thoughts on Medicine", "The Problem With Regulation","Third Best Economy", "The Gadarene Swine Fallacy", "Denying Reality", "The Threat of Perfection", "Utopianism and Disaster", "Government Quackery", "The Problems With "Safe and Effective"", "Two Examples of "Inefficiency" in Capitalism", "Misunderstanding the Market", "The Secret of Success, or, Why Government Fails", "Imperfect Competition, Abstraction and Anti-Trust", "Technology and 'Natural Monopolies'", "Unfair Advantage and Foreign Trade", "The Importance of Error", "Adaptability and Government" and "Redundancy as a Protective Measure".)

8. See "Who Will Decide", "The Inevitability of Bureaucratic Management in Government Enterprises", "Organizations as Filters", "Bureaucracy and Arbitrary Power", "Grow or Die, The Inevitable Expansion of Everything", "Fear Driven Enterprises", "Adaptability and Government", "Best Practices and Resistance to Change, Bureaucracy and the Free Market", "Bureaucratic Management and Self-Policing", "Killing the Railroads", "Bureaucratic Management", "The Bureaucratic Mind", "Bureaucracy Revisited","The Wrong Solution to Bureaucracy" and "Redundancy as a Protective Measure".



I suppose I should make my point a bit more clear. There certainly are some who enact regulations purely for the hidden reasons, because they would bring in revenue, for example. But then there certainly are others who believe in the laws, even if the exceptions make nonsense of them, or they make little sense anyway. Of course, to the believers, they make total sense, as they think they are wise and right and need to protect those benighted "other people". Cigarette taxes are a perfect example of this. If cigarettes are evil, then ban them. If not, leave them alone. Taxes make little sense other than as a revenue stream. But those seeking new money justify them with high sounding rhetoric, and the busy bodies who want to save everyone -- whether they like it or not -- buy into the excuse. Thus, I am not saying all who support regulations realize how absurd they are, many do not, but underlying most regulations are at least a few supporters whose motives are far from innocent.

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