The Case Against Regulation

Comparative Advantage

Tyrone Thursday August 7, 2014

When certain people in the bitcoin industry discuss their eagerness for regulation, they often do so in one of two really irritating ways. One of the ways in which such talk is circulated that is frustrating, irritating, and unpleasant, is the naive way in which certain people approach the idea of government and governmental regulations as though the folks in government were good, kind, nice, friendly public servants, always wanting to do what is best for the most people, and utterly without guile. This naivete is frustrating because it speaks to the ignorance, stupidity, and sheltered foolishness of people who ought to be able to learn more, think better, and be responsible for their own lives, but who don't want to. Learned helplessness is good for those in power, bad for those who want to live their own lives. And the learned helplessness, naivete, stupidity, ignorance, foolishness, and determination to go on leading sheltered lives where everything is someone else's problem are frustrating because a person just wants to shake those people up, maybe slap some sense into them, and that never works.

While it is very occasionally possible to find decent people in public service, the truth is far worse. The people who have power in bureaucracies generally speaking want more power, which means a higher salary, control over more money, control over a larger staff, and therefore greater status amongst those they see as their "peers." People in government circulate back into the private sector, not only after retirement, but often during the course of a career. A few years making decisions about an industry which clearly benefit some participants and harm other participants in that industry can generate enormous financial rewards for the people who make those choices. Even if they are fairly scrupulous about not taking bribes in the time when they are in public office, they often have conversations about jobs in the private sector after their careers are officially ended. Various efforts over the last century to "reform" the practices which are generally described as the "revolving door" between bureaucrats and private sector jobs have been pointless. The system works against the interests of some companies and in the interests of other companies, and those that get the benefits hire the people in government who have been giving them the benefits. We all know it happens, it happens in every major country, and there isn't anything that is going to be done about it.

In writing a letter about the debacle in catastrophic care in the 24 October 2013 issue of the New York Review, author David Goldhill describes the problems in an industry that has been extremely heavily regulated in the USA at state and national levels since 1877. "Adopting a version of Sweden's health care system won't make our health care like Sweden's; it will make it more of what it is already — undisciplined industrial policy made by a coalition of the naive and the self-interested."

Which brings me to sunny point number two. Many of the people who express eagerness for regulation of bitcoins are grotesquely mean-spirited. Their self-interest is not enlightened, but venal. They are mercenary in a short-sighted, vicious, and dishonourable way. Such people have made it clear that they want government regulations to exclude innovation and, to the shock of no one with a grain of scepticism, the first major state regulations, from New York, make innovation nearly impossible, and require that all innovative plans and procedures be submitted to the state regulatory agency so that no trade secrets can be kept within that industry.

The "coalition of the naive and the self-interested" or, as they might be better known, the foolish and the venal, is going to make things very expensive, very difficult, very dangerous, and generally bad - through lack of innovation and lack of participation - in an industry that could be vigorous, growing, and ground-breaking. The people who want regulations because they demand special privileges from government are, to put it simply, evil.

Understanding how this type of evil works, and why naive people should catch a clue before their actions and inaction harm a great many others, might be easier if we take a look at two industries, one that has been extremely heavily regulated for over a century and another which has hardly been regulated at all, since its inception. I don't expect any of the evil people who want to use the force and fraud of government to force their will on the rest of us and make everyone else suffer so they can have more money, power, and leisure, to be a bit less evil. Nor do I really expect many of the people who are extremely naive and form coalitions with the evil because they are too stupid to think things through are going to catch much of a clue. But the people who form the dynamic core, both within our industry and in other fields who are thinking about getting into it, who are neither interested in using the government to screw over their competitors, nor especially naive about anything, might find these ideas useful.

Goldhill's letter formed the inspiration for this essay. "Undisciplined industrial policy" is certainly the way to characterise the healthcare industry in the United States. There were medical licensing laws in Colonial America, but all of these were repealed due to the advent of effective innovations in healthcare, beginning at the start of the 19th Century. So, when I mention the extremes of heavy regulation in the USA since 1877, I am referring to the first medical licence act, that of the state of Alabama, which was passed in 1877 and has not been repealed since then.

Now, I can hear the naive drones beginning to stir. "But, Mr. Johnson, surely you don't imagine that licences for doctors are a bad thing?" And, of course, I do. I think they are a pernicious evil. Just consider, if you would, for a moment, the utter absence of licences for computer professionals. People who write, or have written, computer programmes, including myself, have done so for decades without any government licence at all. Do we have malicious computer programmes? Sure we do, but we have far more programmes that are effective, useful, and perform more or less as expected. Do we have hastily released computer programmes that don't do everything they claim, but are sometimes revised and improved on "upgrade" by major software development companies? Yes, we do. But we don't have any reason to expect less of that sort of thing from, say, Microsoft, if we make computer programmers get a licence in order to work in their profession.

"But doctors do things that could kill people." Hey, goofball, so do computer programmers. Professionals in a vast array of industries do all kinds of things, both as managers, and as line operators of systems, that can kill other people. The wonder of it is that so many people get killed every year in so many different ways without the people responsible, such as the General Motors management clowns directly, personally responsible for sending out faulty ignition systems, being arrested, tried in criminal or even in civil courts, and held accountable. If you've ever had a complaint against a licensed medical professional, you know that you are far more likely to get somewhere going after a claim against their malpractice insurance than you are in going after their medical licence. And, yes, I do oppose mandatory insurance laws, just another huge sop to the finance cartel; in the absence of malpractice insurance a practitioner would face the consequences of malpractice directly, so some doctors would buy insurance and others would be driven into bankruptcy for malfeasance, and still others would be careful, rigorous, and effective healers.

Writing in "The Early Development of Medical Licensing Laws in the United States, 1875-1900," Ronald Hamowy of the Department of History at the University of Alberta explains the specific background that motivated medical licence laws in the United States. His scholarly work can be found here: https://mises.org/journals/jls/3_1/3_1_5.pdf So if you have questions about what he wrote, consult his footnotes in that publication, please.

Prof. Hamowy writes, "By the 1870's, homeopathy, emphasizing minute doses of medication and the recuperative energies of nature, and eclecticism, relying on botanical and herbal remedies, had substantially altered regular medical therapeutics, lessening its dependence on large doses of metallic medicines and bloodletting and adding to its materia medica a host of new botanical drugs. The two sects had firmly established themselves as competing systems of medicine, with homeopathy especially popular in the large urban areas of the east and eclecticism concentrated in the midwest and south. Of the 62,000 physicians practicing in 1870, estimates place the number of homeopaths and eclectics at approximately 8,000, with homeopaths accounting for about two-thirds this number.4 American Medical Association statistics on medical schools and graduates for 1880 show that of the 100 medical schools in operation in that year, fourteen taught homeopathic medicine, graduating twelve percent of all new physicians, while nine schools taught eclecticism, from which close to six percent of all graduates issued.

"The economic condition of the profession being what it was in the 1870's, with no restrictions on entry into the field, a host of competing medical schools eager to graduate doctors in greater numbers, and heterodox medicine contending for the patient's dollar, regular physicians increasingly felt the need to effectively organize. Their goal was to enlist the support of government as a means of regulating the number and qualifications of physicians. The aims of orthodox medicine and its most effective and tireless spokesman, the American Medical Association, were threefold: (1) the establishment of medical licensing laws in the various states to restrict entry into the profession and thus secure a more stable economic climate for physicians than that which obtained under uninhibited competition; (2) the destruction of the proprietary medical school and its replacement with fewer, non-profit institutions of learning, providing extensive and thorough training in medicine with a longer required period of study to a smaller and more select student body; (3) the elimination of heterodox medical sects as unwelcome and competitive forces within the profession."

In other words, the "regular physicians" organised around the perfidious and evil American Medical Association, didn't want to compete. They didn't want to compete in the arena of ideas, they didn't want to compete with alternatives to their brutal and often pointless surgeries and pharmaceutical poisons, and they didn't want innovation. So they organised, they planned, and then they began pushing legislation. Low and behold, a great many naive Americans fell into line, believed newspaper propaganda about the imaginary problems the doctor cabal pretended were at the core of their work, and legislators fell into line. Okay, yes, it was the 1870s, so we can be sure that many legislators took bribes to pass legislation, much as they do today.

You can go ahead and do some research on your own to find out where the enormous powers of the Food and Drug Administration came from. You'll find that a novelist, Upton Sinclair, wrote a book that encouraged a racist, nationalist, militarist "Progressive" named Theodore Roosevelt to come up with a huge new government agency, entirely without constitutional authority for its many powers. You'll also find that the experiments with a radical treatment for morning sickness led to a huge number of birth defects and the dramatic extension of the FDA's powers in 1962. Today, Americans live with a very small cartel of truly enormous pharmaceutical giants controlling an entire industry, with the cooperation and complicity of the national government.

That other interesting governmental initiative of the 1870s, opposition to trusts and cartels that led to the Sherman Anti-Trust act of 1890 and other laws which purported to limit and regulate the consolidation of different industries, has very definitely fallen by the wayside. The people who opposed injustice, whether they were involved in labour unions, in public policy research, or what have you, seem to have utterly failed to act against the total consolidation of the finance industry (where five banks own more than half of all financial assets in the country), the total consolidation of the petrochemical industry (where the giant trust, Standard Oil, has mostly resurrected itself as Exxon-Mobil), the total consolidation of the pharmaceutical industry, the total consolidation of the automobile industry, and so forth. These consolidations leave only a small number of huge corporations running the vast majority of industrial production in their industries, with regulators pretending to keep them in line but actually giving them everything they want, to the disadvantage of all consumers everywhere, with dramatic reductions in innovation, direct attacks on effective products and services, and enormous concentrations of wealth and power among a tenth of a percent of the population.

Now, I'm not in favour of anti-trust laws, either. Why not? Because cartels, trusts, and monopolies do not exist in free markets. Where people are free to innovate and choose, there is competition. Competition is good, effective, and powerful. The people who inherit wealth hate it, so it must be good. Consumers benefit from lower prices, better products, and more new things to do.

If you look at the ultimate end points in these two industries, you see the health care industry becoming a huge government bureaucracy. We already know how Americans are going to be served by such a huge single-provider system. The Veterans Administration has been butchering veterans in its hospitals for as long as I've been alive, and has recently put so many thousands of them on waiting lists that some veterans actually died while waiting for health care. Recently, Congress passed and Obama signed, a bill authorising $18 billion plus for the VA system, so we can expect a lot more butchery, suffering, and death. Efforts to reform the VA have been endless, tireless, and pointless.

Again, you can go ahead and do some research on your own to find out what's been going on. Basically, the people who work in the VA, including nurses, doctors, and patient care schedulers, among many others, have been pointing out what's wrong. Because they have refused to accept shoddy results, these people have "complained." They have reported, fairly and accurately, to their superiors, what is wrong. And, because it is a government agency, they have been fired. They have been routinely dismissed, punished, demoted, re-assigned to horrid jobs, or otherwise attacked by their superiors for daring to look at the truth and daring to want something better.

That, my friends, is the new American way. The people who like government regulations want to make the whole world into a government agency. Ludwig von Mises correctly pointed out that such people have been willing to shed rivers of blood in order to make everyone a bureaucrat and every activity that of a government bureau. One researcher, RJ Rummel of the University of Hawaii, has written extensively on just how deep those rivers of blood have been running. His figure for the 20th Century is now at 262 million lives, as reported here: https://www.hawaii.edu/powerkills/NOTE5.HTM

In other words, if you want to be mean-spirited and unpleasant, if you want government to solve your problems, if you want to see what becomes of that path, you don't have to scratch very hard at the facts to find hundreds of millions of lives obliterated and millions more suffering because of government. I'm an anarchist, I don't believe there is any such thing as "limited" government and I don't think it is funny to hear of "good" government.

On the other hand, you have the computer industry. Beginning at the time of World War Two, very intelligent men and women began developing not only digital computer systems but also computer software to operate on those systems. As things progressed in the comparative peace-time of the 1950s and 1960s, computers became more powerful and computer systems that had filled very large warehouses with equipment were the size of small trucks. In the 1970s, micro-computers arrived, developed by extremely intelligent innovators like Steve Wozniak and dozens of others in the electronics hobby industry. Today you have a computer screen in front of you that probably represents an investment on your part of a few hundred dollars, possibly much less, that can do more calculations per second, is more useful, and takes up much less space than the most sophisticated computer that could be built in 1964, just fifty years ago.

Nobody in the United States licences the manufacturing of computer systems, the development of system architecture, the building and networking of computer systems, the development of computer components and peripherals, the development of two-dimensional or three-dimensional printers, the development of software, the process of learning to program computers, and the benefits are everywhere you look. Many hundreds of millions of people have more computing power in their handheld "cell" phones, each, than was available fifty years ago in the most magnificent computer installations on Earth. Communications cost less and are more extensive today than ever - we were promised video phones in the 1950s, and we finally have them, thanks to cheap computers.

The people who followed Frederick Taylor's concepts of scientific management were wrong, and, frankly, evil. The people who followed Karl Marx's concepts of nationalising industry were wrong, and, frankly, evil. The people who have wanted to build bigger government agencies have proven to be mercenary, venal, mean-spirited, and a bane to human existence. We aren't better protected, we aren't safer, we aren't better off because of government agencies, we are worse off. Americans pay enormous amounts of taxes and their out-of-control government borrows tens of trillions of dollars every year or so from an out-of-control finance industry, and the suffering inflicted worldwide as a result is legendary.

Regulation is bad. It is bad for you as a consumer. It is bad for your industry. Government is a pernicious evil, which, even when it is at its best, as George Washington once noted, is like fire - something very powerful to have under some control, something very destructive if out of control. All evidence since Washington's time has shown that there is no such thing as a limited government, they all get out of control.

Government gets out of control because it is beneficial in a really short-sighted way for people who can influence government to use the power of force and the power of fraud inherent in the nature of government to generate benefits for themselves in their industry. The doctors did it, the pharmaceutical giants did it, the auto giants did it, the banking giants did it, and many other industries have done it: they have used government to force consumers to deal only with them; they have used government to force their competitors out of business; they have used government to inflict suffering on hundreds of millions, and they have used government to get away with all these things, including murder.

The computer hardware and software industries illustrate that it isn't necessary to have government regulation to have a successful industry. The suffering and mass deaths of the 20th Century illustrate that the costs of big government are very high.

You should turn your back on government and choose freedom. The choice is yours.