When Regulations Mimic Rational Behavior

Wednesday, December 06, 2017

There is an interesting look by the Niskan Center at how various economic freedom indexes quantify regulation. I find the fourth bullet point of the conclusions most interesting:

A few shelf-feet of federal regulations. The ones you'd do anyway can make it harder to argue against central planning. (Image via Wikipedia.)
Close examination reveals serious methodological problems in the way both the Fraser and Heritage regulation components are constructed. Neither makes adequate efforts to distinguish between helpful and harmful aspects of regulation. Both include some indicators that fit poorly with common notions of what the regulatory state really is and does, and both exclude important aspects of regulation (especially of international trade). [bold added]
This is a problem I repeatedly encounter when I think about or discuss the effects of regulation, even though I am clear in my mind qbout the difference between central planning and legitimate laws (and the rules, called "regulations" in government, used to carry them out). Setting aside the fact that most people fail to be clear about such a distinction, the fact remains that many government regulations exist that are similar to standards or conventions that would evolve in a free society. (Consider independent standards-setting bodies, free market incentives that might prove fertile for same, and evolving case law. For example, nobody wants to run a restaurant that is reputed to sicken customers with undercooked food: It's easy to imagine industry standards that aren't dictated top-down, and yet are enforced by something like a UL or a Consumer's Union.) To the degree that the government regulations are like what might have arisen anyway and are effective at achieving legitimate purposes, they will look like "good regulations" and will confound attempts to argue that central planning harms the economy.

That said, I regard it as a fundamental error to consider regulation in terms of its economic impact, absent first asking whether regulation violates individual rights. Put another way, while regulatory harm is not a central argument in favor of limited government, demonstrating it can bolster one's case. Conversely, failing to do so (or doing so poorly) can cause one's case to be overlooked for appearing weak or even discredited. See also the many pitfalls of cost-benefit analysis, of which this is an example.

-- CAV


Dinwar said...

I think one possible avenue for attack against regulations that mimic rational behavior is to point out their irrelevance. We don't need regulations dictating that copiers default to 8.5"x11" paper; it simply makes sense to have an industry standard, to maximize efficiency for all processes. Similarly, plugs on electronic devices have become much more standardized over the past few years--because it makes sense to have a standard plug design that works with multiple products (from a manufacturing standpoint, from a consumer standpoint, from a design standpoint, etc).

These are minor examples I can think of off the top of my head, but they illustrate that the market is perfectly capable of establishing standards on its own, without government intervention. This allows us to shift the conversation from "What would we do without regulations?" to "Why are politicians wasting time and taxpayer money on this?"

Gus Van Horn said...


Maybe that can help a little, but you still run into stuff like environmental regulations. You could argue that if there were a real need for, say, electric cars, the market would solve it on its own. To accept the truth of that, you'd have to accept that it is legitimate for people to act selfishly, and that what they seek is generally in harmony (or at least could be) with what they actually need. Most people don't, hence see government regulation as a corrective.