Abstract: It is succinctly said that “it is ‘scientifically’ impossible to create wood out of flames”, but it is precisely believed that “it is ‘empirically’ possible only for the regulator (here, government) to magically do so, because people have authorized a greedy bunch of selfish and violent monopolist to altruistically do all injunctions pertaining to morality, values and ethics”. Moreover, this fictional science theory is so easy to decipher that it even extends quantification of qualities, uniformizing morality, etc. Anomalies are legally expected to shut the fuck up, “feel good” or else move to Somalia. This article deals with the economics of regulations and conclusively motivates to cognitively transform the mainstream syntax from “legal or illegal” to “right or wrong”, because it is high time to decipher the unseen cost of regulations and its draconian nature. Otherwise, you would be encountering economists and sociologists impudently telling you that: “Based on an empirical analysis of the unfree market, I have intellectually concluded that free market is evil.”
Exordium
There is nothing “wrong” to impose regulations, in general, in market, for the purpose of enriching the efficiency, but it is morally wrong to do it through the expropriating instruments. When people are volitionally kept aloof from the seceding rights to associate by these “experts” (regulators), then what makes them so sacrosanct to punish the society for their policies-implementation and enjoy the privileges of monopoly over regulations? As far as I remember, I have not signed any “social” contract with them or with you. If at all you think that my anomalism is immoral, tell me why rape is not good when it purely does utilitarian economics in reality for your goodness too? Regulations driven by the catallactic order are healthier than government-sponsored-regulations, because – in catallaxy – your business of regulations is responsibly more transparent and accountable. Otherwise, under the social system of state, you end up footing the bill for the actions you did not commit; you are victimized; you are allowed to exchange your own liberty for more security and in the end you are supposed to not only pay obeisance to the state but you should be also thankful to the regulators because without them who will “magically” screw you?
The crux
Ludwig von Mises called this an inevitable “caste conflict.” There can be no natural class conflict in society, Mises showed, since the free market harmonizes all economic interests, but in a system of government-granted privileges, there must be a struggle between those who live off the government and the rest of us. It is a disguised struggle, of course, since truth threatens the loot.
Laws against insider trading reduce market efficiency and transparency. If a firm is “cooking the books,” insiders, without restraint on insider trading, will take short positions and lower the share price to a level that aggregates both insider and outsider knowledge. If insiders are restrained from using their knowledge to make transactions, the share price will not reflect their insider information. If outsider investors (those whom such laws are supposed to protect) buy shares, their purchase price won’t reflect the insider knowledge and will be high by comparison to the price after the insider information becomes public. Outsiders wind up taking an avoidable loss. If insiders were allowed to trade freely, the price would never get as high to begin with, and outsiders would lose less money. This is where I guess the regulators have to immediately take economics lessons.SyntaxHaving a regulatory body can make it uneasy to institute effective checks and balances on the agency’s power. This is because when a regulator is given power, the potential for abuse increases exponentially. This body also interferes with the optimization of resources brought through voluntary transactions in the market. To have any advantage, you would have to posit that government regulators could produce more nearly optimum results than the market. This is never, on average, going to be the case. Now having said that, there are segments of the market that benefit from regulation (at the expense of other segments). So, for instance, if you are cosmetologist, you might welcome government regulation of your industry because it restricts the supply of cosmetologists and, therefore, artificially increases the prices you can charge. Most government regulation ends up serving the needs of those it regulates.
Overall, small businesses suffer greater losses from complying with government regulations than large companies. Small businesses usually do not have an adequate amount of staff to keep up with rapidly changing laws. Government regulations often hurt small business disproportionately because many carry a fixed cost. The larger percentage of costs burdened on small businesses hinders their growth. According to the Paris, France-based Organisation for Economic Co-operation and Development, in the industrial-cleaning sector–comprised mostly of small firms–83 percent of these companies claim that government regulations prevent them from expanding their operations.
In the United States, banks have been regulated at the state level for more than 200 years and at the federal level since 1863. Still, financial panics continued to occur, and banks continued to fail, causing Congress to create the Federal Reserve System in 1913. Before creation of the Federal Reserve, the dollar was not subject to sustained inflation (there were periods of inflation and deflation) but the wholesale price index in 1913 was roughly the same as it had been in 1793. Ninety-five years after the creation of the Fed, the dollar is worth about one-twentieth of what it was worth in 1913, despite the fact that the Fed was supposed to provide stable money. The greatest periods of bank failures occurred during the Depression of the 1930s after the creation of the Fed, and then again in the late 1980s and early 1990s when 1,600 banks and one-third of all the savings and loans (S&Ls) failed.
The evidence clearly shows that abrupt, unanticipated and incompetent changes in monetary and regulatory policy by central bankers and other financial regulators have caused far more financial instability and financial institutions’ failures than have unsavory or illegal practices by managers of these institutions. Read my previous article: Are you an Apoplithorismosphobic?
Leaders of some financial institutions have obviously been more adept at anticipating market and regulatory changes than others. Markets punish those companies whose leaders were less astute, but it is not proper to attempt to criminalize well-intentioned mistakes, particularly those caused by failures to anticipate actions of public officials. Regulation can and often does add more systemic risk to the system because people believe the regulators will see problems and act upon them before the market does, giving an illusion of greater safety and stability than actually exists.
Now; say, minimum wage laws cause unnecessary unemployment, for the same reason that a minimum price on anything will decrease the quantity of it that people purchase. If a minimum wage law is passed that makes it illegal to pay less than “M” per hour, employers will continue to keep on payroll only those workers whose hourly work brings in more than “M” in revenues.
Consequently, those workers who are least productive, and are therefore likely to be paid the least without a minimum wage, are also the ones most likely to become unemployed, once minimum wage laws are “constitutionally” implemented. So, how are you feeling now?
Another position held by most economists is that government-enforced price-ceilings cause shortages. Also, read: Why I am not an economist. If the public is willing to buy Q units of some good at price P, and the sellers of that good are willing to sell Q units at P, then in the absence of regulation, the market for that good will clear. That is, everyone who wants to buy or sell at price P will be able to do so. If a regulation imposes a price ceiling below P, sellers will be willing to sell some lesser quantity, Q – a, and buyers will be willing to buy some greater quantity, Q + b, at the new price. In addition to a shortage of a + b units, there is also the matter of deciding who should get the units offered, since at the regulation price, demand will exceed supply. Such situations typically generate ways to avoid the effects of the market imbalance and clear the market, such as ‘black markets’. Read my previous article: Black market: An apologism.
Conclusion: Don’t ask me: “Who will build the roads, without government?”
Now for a mental experiment, try to extrapolate the kind of reasoning above to all the other goods and services you may think cannot be provided without a government.
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