Regulation and Consequences

A relative recently sent me a snippet from a radio show (rhymes with Tarm Song and Smetty) in which they promote the idea that the "free market" can replace most government regulation via organizations like Consumer Reports and web-based consumer rating agencies.

The argument that private consumer organizations can get sued if they screw up is questionable. If they fail to detect bacteria in milk and millions get sick, for example, are they liable? Most likely there will be a tiny disclaimer at the bottom of their legal statement that limits their legal risk.

Further, it would be expensive for consumer reports etc. to inspect every milk factory. Currently they only test one or a few product samples overall for their reviews. Also note that dairies pay inspection fees to the government; it generally doesn't come out of citizen's pockets as income taxes; although may increase the price of the milk itself as companies pass on the fees in their price.

I've never heard a consumer service perform such a service at a large scale. It may make for an interesting experiment, but please try it on something less risky than food first. I'm all for testing new ideas, but don't start out with the Big Kahuna.

As far as financial rating agencies, many existing agencies gave the banks who were purchasing suspect home mortgages high marks before the mortgage melt-down. Here's a quote from an article related to Moody's mortgage-related ratings:

CEO Raymond McDaniel said in written remarks released ahead of his testimony that he was "deeply disappointed" by the performance of the credit ratings issued by Moody's for complex bonds called mortgage-backed securities.

"Moody's is certainly not satisfied with the performance of [our] ratings. Indeed, over the past few years, there has been an intense level of self evaluation within the organization," said McDaniel, the CEO and chairman of a once proud company that has seen its share value slide down with its reputation.

Source: http://www.mcclatchydc.com/2010/06/02/95197/moodys-executives-offer-regret.html

Another example given of alleged excess regulation is "regular" restaurants banning hot-dog stands selling meals near themselves because they don't want the competition. That may be a case of crony capitalism. Restaurants may be influencing local officials to keep hotdog stands out of their area. If you have a way to fix crony capitalism, I'm all ears. Voters typically don't look into those details close enough unless they "blow up" in the press; and the vast majority of the details don't.

You might say, "just don't have ANY regulations about where people can sell food, then the crony capitalists (such as fixed-location restaurants) can't bribe away competition." However, there are likely many unintended consequences of such an over-arching law.

For example, traffic congestion near high-traffic hotdog vendors or already-full streets. Most new brick-and-mortar businesses are required to demonstrate they have sufficient parking facilities so that cars don't spill over into other areas. (And I've witnessed the annoying problems when they guess wrong.) Or what if hot-dog grease ends up being dumped all over the pavement with no trace of who dumped it, causing skids, slips, and deaths.

And if a fly-by-night push-cart stand poisons you and your children with bad meat, you may not even be able to find the company or owner to sue. You can't sue somebody you can't find. It's harder for a brick building renter to skip town. (It's also hard to sue if you are dead.)

Again, I'm all for testing ideas, but the result is not likely to be what conservatives think they will be. They live in an idealistic dream-world. Many a town have passed zoning laws as a result of organizations abusing the system. Yes, some such laws and regulations are stupid and worthy of ridicule. But that's not a reason to toss all laws.

If 10% are bad, does that mean we should toss 100%? That's not rational. Fox News and Friends will keep emphasizing the 10% silly laws in an effort to rid all because the plutocrats pay them to say that. They cherry-pick their evidence and scenarios to paint an unbalanced picture of regulation. You don't hear about the majority of good regulations.

In the program, the Food and Drug Administration (FDA) is allegedly withholding useful new medications because they are a "slow and bureaucratic" organization. I've heard complaints both ways regarding when to approve the drugs. There have been medications that were allegedly released too early, such as Vioxx, which resulted in potential injury and death. Weighing the risk is a delicate balance.

Some want individuals to be able to accept the risks themselves; to purchase whatever risky product or service they wish. However, society may just end up taking care of people who screw themselves up, becoming lame zombies, creating higher insurance rates for us all; and a society perhaps too crippled or hobbled to work.

Many conservatives want Social Darwinism where those who make consumption mistakes are just left to die in the street and as a society we just leave their corpses there to rot as punishment for their mistakes. (Maybe that's what they'll make the hotdogs out of.) However, that's not the kind of society I personally want and I won't vote for that. It would also create a spreading sociopathic moral rot.

I doubt it would be economically efficient either because people on average would waste all their resources recovering from preventable mistakes. We'd be both an economic dead zone and a bunch of twisted sociopaths that nobody would want to be associated with.

Before the FDA was formed, a company once sold a successful weight loss pill. It turned out the pills had tape-worm spores in them.

(See also our 5/3/2010 article on regulation & efficiency)