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Is Regulatory Government Against the Free Market? by Robert Merriam |
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September 27, 2011
In the hawking of
ideological positions that too often substitutes for congressional
debate, ‘Government should just get out of the way’ or ‘government is
too big,’ statements are characteristic of the political right.
Well yes, government expenditures for wars must be curbed and entitlement programs must be in line with revenue realities. Still, republican complaints about federal support and oversight of the American market are like arguing that the NCAA regulation and support of collegiate sports should be curbed. In truth, the government is joined at the hip with free market enterprise.
At considerable public expense the federal government provides the free market with protection from international trade, monetary aggression and general lawlessness. Government regulations protect consumers from fraud and dangerous products which is necessary for maintaining consumer confidence and spending. Only in a fair and lawful environment can the market do what it does best: assign value to goods and services and ensure their efficient distribution in society at the lowest price. But strong incentives for maximizing profit leave the market susceptible to fraud, theft or legal gaming of the system.
Among the majorities of honest entrepreneurs and financiers, there are always some who game the system, misrepresent products, or simply rob it. In fact government regulatory agencies and laws, irksome as they are, have arisen as direct responses to various kinds of business and financial shenanigans that have threatened consumer confidence. A few examples make the obvious point.
Bankers seeking profits in the stock market misread market fundamentals and risk factors, plunging the U.S. economy into depression in the 1930’s., To prevent it from happening again, The Glass-Steagal Act of 1933 was passed that forbad commercial banking and stock brokerage in the same bank. Under intense bank pressure it was revoked in 1999, leading to another bank crisis in 2007-08 and another round of regulations.
Misleading information was used in selling securities to the public. The government responded with the Securities Act of 1933, requiring the registration (oversight) of information about securities.
Brokers working inside financial institutions used private information to make profitable trades. The Insider Trading Sanctions Act of 1884 and subsequent regulations are still not completely successful in stopping this threat to market credibility.
John D. Rockefeller’s Standard Oil Company and J.P. Morgan’s United States Steel Corporation were near monopolies in the late 1800’s, ruthlessly squeezing out smaller competitors. The Sherman Antitrust Act of 1890 and many subsequent laws and federal actions outlawed such restraints on the competition that a free market requires.
Adulterated or contaminated food products from domestic and foreign sources threatened food and drug markets. Questionably labeled or ineffective drugs and additives were bilking consumers. Such problems required the establishment of Food and Drug Administration and its oversight to protect consumers and maintain supplier credibility.
The market for labor has been abused by some manufacturers, mine owners, and a host of other businesses. Between 1900 – 1910, for example, mine fatalities exceeded 2000 a year. In direct response, Congress established the Bureau of Mines and later the Mining Enforcement and Safety Administration in 1941. Today the Department of Labor houses the Occupational Safety and Health Administration, OSHA, that enforces laws protecting workers from unsafe working conditions.
Governmental reactions to stop such threats to the market has required the creation of oversight bureaus, commissions, and laboratories. Much of the size and expense of the federal government is directly related to maintenance of a healthy market. And oversight is getting more difficult all the time as labor, markets, production, and financial operations become ever more complex. Government statistics show that republicans have few bragging rights on the size and scope of the federal government anyway. From 1946 through 2001 the policies of seven republican administrations increased the number of non-military employees an average of 1.3% per term while policies of seven democratic administrations increased them only 0.8%.
A crucially important service the federal government renders to the American market is a supply of consumers. In the face of economic downturns, international competition, and natural disasters the government tries to keep money in the pockets of consumers and in the process supports the supply side of the market.
No, the political right has it all wrong in thinking that the government should get out of the way. Today, the market contains increasingly complex products behind acres of fine print. Consumers and the market both need protection. It is a no-brainer; the market would be chaotic without government; government could not exist without the market. There is a cost of doing business and cheap government management of the market is not the answer.
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