Thursday, November 6, 2008

The Utilities part II

Government regulations exist for one reason only, to produce results which might not otherwise occur in a free market. This is indisputable. While one may argue as to the need for such regulations, one can not argue as to their purpose. So the discussion must then be about what results we wish to produce, why they aren't produced naturally by the free market, the demand for those results, and the consequences of the efforts to produce them, compared to the consequences of inaction.

Some will argue that it is the responsibility of governments to insure equity within the marketplace. If in fact that were the case, then regulation would be necessary, as the free market is inherently a meritocracy, and as such, while arguably distributing success fairly, it does not distribute it equally. However, in order to accomplish this, regulatory agencies such as the FCC, FDA, and OSHA must set strict rules about the manner in which businesses may operate, including when and with whom they may compete, whom they may employ, and how much they may charge for their products and services. In order to do this, they must use coercive force. So if you believe that it is the role of government to create equity, then you are saying that it is acceptable to threaten people's lives and livelihoods in order to produce results which would not otherwise occur in a free market system.

Besides the use of coercive force, there are other problems with government regulation. One is the problem of regulatory capture. Regulatory capture is when an agency empowered to officiate over an industry, presumably on behalf of the consumer, becomes beholden to the commercial interests which dominate the industry. For instance, when the FDA, whose stated purpose is to protect “the public health,” devotes a significant portion of its resources to banning, controlling, and censoring vitamins and dietary supplements, while simultaneously allowing dangerous drugs like Vioxx into the market, the bias in favor of the industry it's supposed to regulate, and against that industry's competitors, would seem to be evident.

And this kind of regulatory capture is not singular to the FDA. The meat industry is able to stall or prevent a number of food safety regulations proposed by The United States Department of Agriculture. This is only predictable. It's in the best interest of these industries to attempt to influence an agency which is able to create laws with the backing of violence, and since they have far more resources individually then you do, they are able to. Of course, without government regulation, businesses could still behave in this fashion, but their decisions would only affect individual companies, and lack the threat of violence to enforce them.

Remember, I'm not arguing that evil would cease to exist in a society without government, instead, I'm arguing that that evil would be committed by individuals instead of governments, on a much smaller scale, affecting fewer people, and supported by their own resources instead of by the resources of the people seized through force.

So the government neither supplies the vast majority of public services, nor appropriately regulates those services. Now that we understand the role government plays in supplying those services, we must address the cost f those services.

First, it is important to remember that none of these services are free. It may seem obvious to many of you, but I often hear people argue that the roads are free, or their water or internet service is provided by their school or landlord, or that phone, sewage, or postal services are so inexpensive as to be nearly free. The reality is that none of these services are free. Ever. They cost someone resources to produce, market, and deliver to the end user, and those costs must be paid.

Many times, these costs are either disguised or disbursed. For instance, if your internet service is provided for you by your landlord, you may think of it as “free.” In reality, the cost of providing that service is simply built into your rental fees. State owned utilities may offer services, such as the roads, which seem to the end user to be “free,” but the cost of those services are actually disbursed amongst the entire taxpaying base. So while you may not pay while you're using the service, that doesn't mean that you didn't pay to use the service. And of course, even if you never use the service, you still had to pay for it.

It is important to remember that these services carry costs, because part of this argument is based on the misconception that while you are receiving these services for free or nearly free now, you would have to pay an exorbitant amount in a stateless society. This is simply untrue.

The cost of regulation compliance alone is estimated at roughly 1.4 trillion dollars a year, nearly 15 percent of the total economy. These costs, like all costs incurred by businesses, are passed on to the consumer. That means that end users are paying an additional 1.4 trillion dollars for goods and services, every year, just so companies can comply with government regulations, which I've already shown are at least questionable. Now, in a stateless society, some of these costs would still exist. Responsible companies would still maintain safe and clean facilities, and pass on that cost to their customers. But many regulations, such as the cost of enforcing bans on dietary supplements claiming they can cure headaches, lead to wasteful spending, and those costs would disappear, putting more money back into the economy and reducing the cost of the related goods and services.

Similarly, market competition has a proven cost reducing effect. In public service industries where the government enjoys a coercive monopoly, the lack of competitive forces effects prices by not effecting them. In an environment where no one enjoyed a coercive monopoly on the marketing and delivery of public services, providers would be forced to compete in price and customer service in order to attract customers. Under those circumstances, prices would have to adjust to match their value to the consumer.

Additionally, in a stateless society, your money would have far greater purchasing power. Removing taxation would immediately reduce the cost of goods and services by more than 22 percent. Even worse, since the creation of the Federal Reserve in 1913, the federal reserve note has lost 94% of its purchasing power to inflation. Additionally, by some estimates, nearly 70% of your money goes back to the government through taxation, tariffs, and fees. This combines to reduce your purchasing power to approximately 1.8 percent of the face value of your currency. In a system with commodity based monies, you would have the full value of your currency, increasing your purchasing power by nearly 5000 percent.

But that's not the end of it. Each dollar collected by government is a dollar not invested in the growth of the economy. A mere 3 percent tax increase from 21 to 24 percent costs the economy nearly 200 percent of the value of the money taxed over 50 years. And that number increases exponentially with greater taxation. That's money that never existed, was never invested, never earned, and never spent. By removing that money from the economy, government continues to depress the standard of living of all Americans, rich and poor. What's more, in many industries, wages are growing slower than inflation, so every year, people are actually making less than the year before.

Even if the price of public services increased, and in some areas it may due to the removal of dangerous and immoral price controls, your increased purchasing power would more than make up for it. Would the cost of these services be as much of a fear if 15 percent of the money in the economy was put back in the hands of the consumer, and another 43 percent returned by the complete abolition of government and government spending, and inflation wasn't progressively robbing you of the value of your money year after year, and money was worth 50 times what it is today?

What would you be concerned with if you were making 50 times what you make now?

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