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Which is worse: regulation
or deregulation?
Paul Craig Roberts
Online
Journal
Thursday January 31, 2008
Libertarians preach the morality of the market, and
socialists preach the morality of the state. Those convinced of
the market's morality want deregulation; those convinced of the
state's morality want regulation.
In truth, neither seems to work.
Consider for example the rules against collusion. The political
left imposed this regulatory rule in order to prevent monopoly
behavior by companies. One consequence has been that, unable to
collude, firms are slaves to their bottom lines. In order to compete
successfully in the competitive new world of globalism, firms
have curtailed pensions and health insurance for their employees.
Or consider the regulation of new drugs, which drives up costs
and delays remedies without, apparently, doing much to improve
safety.
Or the fleet mileage standards that regulation imposes on car
makers. These regulations destroyed the family station wagon.
Families needing carrying capacity turned to vans and to panel
trucks. Car makers saw a new market and invented the SUV, which
as a "light truck" was exempt from the fleet milage
regulations. The effort to impose fuel economy resulted in cars
being replaced by overweight fuel-guzzling SUVs.
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On the other hand, consider the current troubles resulting from
banking and financial deregulation. The losses from this one crisis
greatly exceed any gains from deregulation.
Or consider the plight of the deregulated airlines and deterioration
in the quality of air service. Or the higher costs of telephone
service and the loss of a blue chip stock for widows and retirement
funds that resulted from breaking up AT&T. Or the scandals
and uncertainties from utility deregulation which permits nonenergy
producers like Enron to contract to deliver electric power.
Economists claim that deregulation results in lower prices. Cheap
advanced fare airline ticket prices are cited as evidence. What
these economists mean is that the fares without stopovers are
cheap to people who can plan their trips in advance. Other passengers
subsidize these advanced fares by paying four times as much. Moreover,
deregulation has created bottom-line competition that has lowered
service, removed meals, and results in periodic bankruptcy, thus
forcing the airlines' creditors to pay for the low fares. Pilots,
flight attendants, and aircraft maintenance crews subsidize the
lower fares with reductions in salaries and pension benefits.
Are bankruptcies and mergers leading the industry toward one carrier
and the re-emergence of regulation?
Consider the fallout from trucking deregulation. As in the case
of the airlines, the claim was that more communities would be
served and costs would decline. But which costs? Deregulation
made every minute a bottom-line item. Trucks became bigger, heavier,
and travel at higher speeds. Highway safety suffers, and highway
maintenance costs rise. The courtesy of truck drivers declined.
When trucking was regulated, truckers would stop to help people
whose cars had broken down. Today that would throw off the schedule
and threaten the bottom-line.
Economists dismiss costs that aren't included in price. For them
the cost that matters is the price paid by consumers. The truck
that gets there faster delivers cheaper to the consumer. The myriad
ways in which people pay the price of deregulation are not part
of the price paid at the checkout counter.
Economists also say that offshoring lowers Wal-Mart prices, thus
benefiting the consumer. They don't say that by moving jobs abroad
offshoring reduces the job opportunities and lifetime earnings
of the US labor force, or that it wrecks the finances of the laid-off
US workers and destroys the tax base of their local communities.
None of these costs of offshoring enter into the price of the
offshored goods that Americans purchase.
Privatization vs. socialization is another dimension of the conflict.
Those who distrust the power of private ownership put faith in
public ownership, and those who distrust the power of the state
find freedom to be imperiled in the absence of private ownership.
Twentieth century experience established that public ownership
is economically inefficient without producing offsetting gains
in public welfare. Those in charge of nationalized firms live
well both at the expense of taxpayers and consumers.
Nevertheless, privatization can be pushed too far, and it has.
As a result of the upfront cost of building prisons and their
high operating costs when in government hands, prisons are being
privatized and have become profit-making ventures. Governments
avoid the construction costs and contract for incarceration services.
Allegedly, the greater efficiency of the private operation lowers
the cost.
Private prisons, however, require a constant stream of prisoners.
They cannot afford to have vacant cells. If incarceration rates
fell, profits would disappear and bankruptcy would descend upon
the owners. Thus, privatized prisons create a demand for criminals
and, as a result, might actually raise the total cost of incarceration.
The US -- the "land of liberty" -- has the largest
prison population in the world. With 5 percent of the world's
population, the US has 25 percent of the prison population. The
US has 1.3 million more people in prison than crime-ridden Russia,
and 700,000 more prisoners than authoritarian China, which has
a population four times larger.
In the US, the number and kind of crimes have exploded. Prisons
are full of drug users, and the US now has "hate crimes"
such as the use of constitutionally protected free speech against
"protected minorities." It is in the self-interest of
prison investors to agitate for yet more criminalization of civil
liberties and ordinary human behavior.
The case for deregulation is as ideological as the case for regulation.
There is no open-and-shut case for either approach. Such issues
should be decided on their merits, but usually are decided by
the reigning ideology of an epoch or by powerful interest groups.
The Bush regime has deregulated the government in the sense that
the regime has removed constraints that the Founders put on executive
power. This was done in the name of the "war on terror."
Simultaneously, Bush has increased the regulation of our travel
and communication, spying on our Internet use and specifying to
the ounce the quantities of toothpaste and shampoo with which
Americans can board commercial airliners.
Crises destroy liberty. Lincoln used the crisis of states withdrawing
from the union to destroy states' rights, an essential preservative
of liberty in the minds of the Founders. Roosevelt used the Great
Depression to destroy the legislative power of Congress by having
that power delegated to federal agencies. Bush used 9/11 to assault
the civil liberties that protect Americans from a police state.
Perhaps we have now reached a point where both libertarians and
left-wingers can agree that the US government desperately needs
to be reregulated and again held accountable to the people.
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