Posts tagged Regulatory capture

Get the Gun Out of the Room.

Sheldon Richman recently published a TGIF column A Free Market in Banking? Not Even Close in which he points out that when folks like John Quiggin claim that free-market economic ideas have been tried and found wanting in the late economic crisis, they are attacking a Ridiculous Strawman of free-market ideas. There has been, to be sure, an economic crisis, which had something to do with bankers acting recklessly and exploitatively. But not because they were unregulated: there is no such thing as unregulated banking or a free market in money, and never has been at any time in the history of the United States (the Fed is a problem, but it’s far from the first problem).[1] In comments on this story, Shyla asks the musical question:

This article raises a critical question about how to structure our economic policies in light of the recession, spiraling debt, and financial collapse.

Let’s say I buy the argument these catastrophes were precipitated by crazy distortions in market forces. Richman suggests these crazy distortions are the result of corporatist influence and unintended consequences.

How do libertarians propose to counter “the competition-inhibiting partnership between influential businesses and government officials?”

Well, one possibility is to get rid of the government officials.

When positions of power are held in place, I think it’s a fool’s errand to try to devise strategies for keeping the wealthy and well-connected from corrupting and exploiting the power of these offices to their own ends. Political processes tend to benefit the politically-connected, and every federal regulatory agency, from the FTC down to TARP, has a long and sorry history of being captured and exploited by the trusts, cartelists, monopolists, robber-barons and financial sharks that they were supposedly concocted to restrain. So rather than worrying about how to stop influential businesses from capturing the regulatory apparatus for their own ends, better to abolish the regulatory apparatus, and refocus on economic, rather than political, means of responding to economic crises.

Of course, you may want to ask the question one step back: how, then, do you get rid of the government officials? (I.e., how do you stop admittedly influential players from exerting their influence over the legislative process, in order to assure that the offices they want created and sustained are created and sustained, in spite of popular indifference or popular objections?) Well, that is admittedly a hard problem. My answer is that in order to get rid of the government officials, you ought to get rid of the government.

I don’t doubt that as long as a legislative process is monopolized by a single, professional political apparatus, that apparatus will be an attractive prize and a willing tool for the influential and wealthy. Concentrated power will always be vulnerable to co-optation, corruption, and exploitation by those who are well-placed to take advantage of it. Attempts to vest all political authority in a single, professionalized, territorial monopoly, but then to turn around and strictly limit that government (for example, by means of a written constitution, or regular elections of officials) have always and everywhere failed. If initially limited, it will grow; legislation will multiply officials, establish bureaucracies, and ratchet up the level of political control, in response to pressure from the concentrated interests (chief among them influential businesses) that benefit from all that. Not because power cannot possibly be limited, but because concentrated power cannot be counted on to limit itself in the absence of any ultimate accountability or threat of competition. The solution, then, is not to find ways to insulate concentrated power from outside influence (which, even if achieved, would make an even worse problem: an absolutely unaccountable absolute state). It’s to diffuse power throughout civil society, rather than concentrating it all in a single, professionalized, territorial monopoly government.

Of course, you may now want to ask the question one further step back: if the solution to business-regulatory collusion is to get rid of the regulatory offices, and the way to get rid of regulatory offices (in spite of business pressure to create them) is to get rid of government, then what’s the way to get rid of government? Well, that is a hard problem, and I don’t have an easy answer. Perhaps it is impossible under present social and economic conditions. I’m inclined to doubt that, but if it is, then surely the answer is to work towards changing present social and economic conditions, around the edges and where possible, by means that avoid the corporate-political nexus, and in ways that undermine the corporate-political nexus’s control over our thoughts and everyday lives: spreading libertarian ideas, educating people about the ways in which bankers and other influential businesses have never been subject to free market conditions, how influential businesses have used the state for their own ends, helping people become more self-sufficient, materially secure and culturally respected while working “outside the system,” encouraging forms of protest, social activism and community organization that operate outside of conventional electoral politics or legislative lobbying, etc. Some of my fellow Anarchists call this “building the new society within the shell of the old”; if anarchy is not now possible, that’s no reason to imagine that even more fanciful utopian schemes (such as “progressive regulation,” “good government,” or “limited government”) are any more plausible or likely to succeed. And if anarchy is not now possible, there is no reason why we should give up on working anarchistically to make it possible in the future.

See also:

  1. [1]Richman discusses efforts at national banking cartels dating back to Alexander Hamilton, restrictions on branch banking, and regulations of interest rates and currency. The only thing I’d want to do at this point is to add: to discuss how legal tender laws, government tax policies, and government-enforced economic dependency and state capitalism conspire to create an artificial demand for liquidity in general, and balances in government-approved cash in particular; how 19th century banking regulations specifically taxed or prohibited co-operative forms of credit and money backed by goods other than government-approved precious metals; how government war bonds, the coercive extraction of tax revenues, and the promise of government bail-outs have been undergirding and coercively securing American banking bidniz models since the Revolutionary War; and the rest of the usual mutualist song and dance about the Money Monopoly.

The only Good Government is No Government

To-day at The Freeman: Ideas on Liberty:

Guest Column | by Charles Johnson

Is the Problem Really Too Little Trust in Government?

Posted August 23, 2010

There is one point where I can unequivocally agree with E.J. Dionne’s column “Can We Reverse the Tide on Government Distrust” (Washington Post, May 6, 2010) – when he tells us that So far, the Obama administration has missed the opportunity to demonstrate … how it is changing the way government works. How is its approach to … regulations different from what was done before? … How are its priorities different?

How indeed?

Two years in, if there’s any noticeable difference between Bush’s policies of corporate privilege, endless warfare, bailouts, executive power, and bureaucratic expansion, and Obama’s policies of corporate privilege, endless warfare, bailouts, executive power, and bureaucratic expansion, I’d like to know where to find it. The difference between me and E.J. Dionne is that Dionne is apparently surprised by this outcome — why hasn’t Obama done better? At issue is what used to be called Good Government – the problem of ensuring that a centralized managerial State, with expansive powers to intervene in all matters economic, social, or hygienic, will be run cleanly, and competently, by qualified experts. Dionne insists that financial market meltdowns, oil spills, and coal-mine disasters reveal the catastrophic results of a few years of Bush-era government neglect. Those of us who remember the Bush administration may have a hard time accepting the claim that it was an era in which government was not doing enough; and we see these headline-grabbing catastrophes as only the tail end of a decades-long crisis – a bipartisan, politically created crisis of institutional incentives and industry best practice-ism, created, nurtured, and protected by government itself.

. . .

Dionne may present his article as a commentary on recent news, but the headlines are only carelessly chosen illustrations for a message that seems copied out of a children’s civics textbook circa 1948. Elected government’s task is to stand up for the many against the few, to make sure that corporations are properly supervised, and to protect those with weaker bargaining positions … against the harm that those in stronger bargaining positions might inflict. Our problem is simply that we do not trust the political means enough. According to Dionne, if we are ever to solve these politically created crises, we need to know that government in a free society is not a distant force but, rather, something that all of us influence and shape.

To be sure, government is not very distant from the downtown offices of the Washington Post.[1] For the rest of us, though, access is somewhat more limited, and not “all of us” have the same influence in shaping government policy. That is done by political insiders and economic incumbents: As scholars like Gabriel Kolko and Butler Shafer have repeatedly shown, government regulatory bodies from the FTC to the MSHA to the SEC have consistently been captured by the incumbents in the industries they are supposed to regulate, systematically rigging government regulations in such a way as to build up cartels, exclude competition, and protect businessmen from liability for harmful practices.

Even with the record of regulatory capture and industry-driven policy, Dionne, like many Progressives, simply insists that politicians need even more trust and fewer restraints on action to give them the independence to do the right thing. You might call this kind of Progressivism a theory of trickle-down politics: When government devotes the overwhelming majority of its power and resources to foolish or destructive programs directed by concentrated interests – subsidies, bailouts, anticompetitive regulations, or an ever-growing military-industrial “National Security” complex – the proposed solution is to give that same government even more strength and greater resources to dispose of, on the hope that some of the surplus will eventually make it through the net of insider control to reach programs that offer a pittance to the little guy.

Individualists know that when you reward the institutions that created crisis, you are going to get more crises. Greater regulatory powers will only make government more attractive to industry incumbents; the more politics is involved in industry, the more that political pull pays off for the industrialists. The root causes of the crises we’ve faced in recent years are not problems of competence or corruption. They are problems of cartelization and capture. The solution is not more trust in government; it’s to realize there are things the political means just cannot accomplish, which should instead be addressed through decentralized, peaceful social cooperation. . . .

— Charles Johnson, The Freeman Online (23 August 2010): Is the Problem Really Too Little Trust in Government?

The article also includes some brief recapitulations of the Money Monopoly, the Land and Natural Resource monopolies, and the recent history of BP, Massey Energy, and the MSHA. You can read the whole thing at The Freeman Online to-day.

Thanks to Sheldon Richman, again, for making this possible, and for his invaluable aid as an editor. My only complaint is that I think The Freeman really should have chosen a better author photo for me than the one they have at the top of the story. In that one the camera adds about 20 years, and a lot of corporate liberalism.

  1. [1][Less than a mile from the Executive Branch! Check it out on Google Maps! –R.G.]