THE REGULATORY STATE
By Dr. Lawrence Wilson
© November 2017, L.D. Wilson Consultants, Inc.
All information in this article is for educational purposes only. It is not for the diagnosis, treatment, prescription or cure of any disease or health condition.
Definition of the regulatory state. This term refers to a nation in which most of the laws in a society are not made by elected representatives of the people. Instead, most laws are in the form of regulations. To understand this, we must carefully define regulations.
Definition of regulations. As used in this article, regulations are rules that are made by regulatory agencies of the government.
That is, they are not part of the Constitution of the nation or locality, and they are not statutes, which are laws passed by a legislature.
Instead, the legislatures or official law-making body of the society delegates the authority to make regulations to an agency of the government. These are called regulatory agencies.
For example, the United States has about 50 regulatory agencies. Examples of them are the Food and Drug Administration (regulates foods, cosmetics and drugs), the Environmental Protection Agency (regulates many manufacturing and other industries), the Federal Trade Commission (regulates advertising) and the Federal Communication Commission (regulates telephone, radio, television and other communication).
There are also agencies that regulate transportation, agriculture, housing, health care and practically every other area of life.
Rules with the power and effect of laws. Although regulations are not statutes or laws, they have the effect and power of laws, meaning that one can be fined or put in jail for violating them.
Advanced societies have laws that seek to prevent the worst abuses in every area of life such as manufacturing, selling products, raising food, driving cars, raising children and more.
These laws are many and include:
1. Moral laws such as the 10 Commandments of Moses. Based upon these, Western nations have a rather simple set of criminal laws that outlaw murder, robbery, fraud (lying), rape, and other crimes.
2. Constitutional laws guaranteeing certain rights and freedoms to the people, while giving other rights and powers to the government.
3. Statutes, which are laws passed by legislatures that are often elected by the people.
4. Regulations, which are rules made by government agencies such as the Federal Trade Commission, Environmental Protection Agency and others.
EXAMPLES OF HOW SOCIETIES HELP PEOPLE MAKE WISE ECONOMIC CHOICES
Socialist and communist societies. These societies don’t have the economic choice problem as much because they don’t allow much choice of what people can buy and sell. The government makes most of these decisions. There are one or two kinds of cars available, a few kinds of foods, a few choices of clothing, and so on.
Free market, capitalist societies. In these societies, many more choices are permitted. To help people choose among them, the following are always present:
- Citizens vote with their money and patronage in support of certain products and services, while they shun other products and services.
- Citizens also spread information about products and services through their speech, internet posts, and other informal means.
- Citizens are allowed to publish books, magazines, newsletters, blogs and to establish consumer safety organizations to advise others about the safety and efficacy of products and services. The product safety organizations only allow their “stamp of approval” on products and services that meet their standards. This is a powerful private regulatory system.
- Companies use branding, advertising, licensing, copyrights, and trademarks to inform people about product safety and other features of their products and services.
- The legal system or court system offers recourse if a person is harmed by a product or service. The basis for this is the right to sue for damages if one is harmed by a product or service. It is also a set of general criminal laws based upon the 10 Commandments of Moses, such as laws against murder, fraud, negligence, and misrepresentation.
However, over the past 100 years, the free-market capitalist societies have moved much closer to the communist societies in that they have set up powerful government agencies that essentially control most economic activities and industries and occupations. They do this by passing what are called regulations, and the agencies are called regulatory agencies.
These agencies prescribe or proscribe certain materials, designs, or other requirements for products and services.
The government may also issue licenses (requiring government permission) for the use of certain materials, certain manufacturing techniques. They also license entire occupations in an effort to control product and service safety.
Government regulatory agencies exist today in almost all nations at all levels of government, from the national to the state to the county and city levels. They each add even more regulations and rules that people must follow. Often they are confusing and, at times, conflict with one another.
THE PROBLEMS OF THE REGULATORY AGENCIES
1. Quantity. They have become very numerous and powerful.
2. Corruption. This has given rise to a great deal of corruption of these agencies by special interest groups who benefit from certain regulations. For example, studies indicate that up to 50% of the employees of the American Food And Drug Administration have received money from drug companies.
3. Little or no accountability. There is no control over the problem because the members of the regulatory agencies are not not elected by the citizens. Instead, they are government bureaucrats who have quite secure jobs and answer to no one but themselves.
In this regard, they are very different from the people’s law-making bodies such as the Senate and House of Representatives in America or the parliaments in Europe or Asia.
4. Confusing, redundant and, at times, conflicting. As regulations proliferate, with no central control over them, they often become difficult to understand and follow, and at times, conflict with one another. For example, an environmental regulation may conflict with a regulation passed by another agency such as a health department.
As a result, supposedly democratic societies are now run in a fairly dictatorial or tyrannical manner by regulatory agencies.
A CRITICAL THEOREM
Throughout this article, please always keep in mind a critical economic principle: Anything that gets between a buyer and a seller damages the economy.
This economic principle is vital in any discussion of regulation because all government regulations get in the way of the relationship between buyers and sellers. In contrast, voluntary methods of assuring quality such as publishing reviews and reports of people’s experience with a product or service do not interfere with the relationship between buyer and seller at all. They just spread information.
According to this principle, the fewer government regulations the better! Please keep this in mind as we discuss this topic in more detail.
THE REGULATORY STATE
An example - vehicles. The easiest way to understand the problem with excessive and corrupt government regulations is with an example many people understand, at least to a degree – their automobile.
Ten years ago there was a lot of excitement in America about hybrid cars and electric cars. We were told this new technology would triple the gas mileage of most vehicles, clean up the air, and reduce oil usage.
I recall hearing that in 10 years, all the new cars would be hybrids because it is such a superior technology. Yet very little has come of this. YOU SHOULD ASK WHY?
Perhaps it is not such a good technology. However, that is not true. But there is another problem - regulations.
Just a few regulations have largely brought a halt to the hybrid and electric car industries. They do not make any sense, and are clearly just an effort to stop technological progress and thereby damage the economies of the nations. These regulations may seem a little technical, so I will attempt to explain what they mean.
Rule #1. Hybrid cars must have a dual drive system. This means that both the gas motor and the electric motor must be able to drive the wheels of the car. This is ridiculous.
A much better arrangement is that the gas motor just drives a generator, which sends power to the electric motor. The result is that the drive system must be much more complex, which adds cost and detracts from the efficiency of the car.
Rule #2. Hybrids and electric cars cannot use lead-acid batteries. They must use lithium batteries. This is also ridiculous.
Lead-acid batteries are at least ten times cheaper than lithium batteries. They have been around for years. We can safely recycle the lead without damaging the environment.
Rule #3. Hybrids and electric vehicles cannot use simple golf cart technology. This involves placing an electric motor between the rear wheels of the car. Instead, the motor must be in the front of the car. This is also ridiculous.
Placing an electric motor between the rear wheels of the vehicle is simple, reliable and inexpensive. Putting the motor in the front requires adding a drive shaft and differential – a system of gears to transfer the power to the wheels. This adds cost and makes the vehicle heavier, reducing the gas mileage.
Rule #4. Hybrids and electrics may not use regenerative braking. This is the simple idea that whenever one steps on the brake of the car, it would recharge the batteries. This is also ridiculous. Regenerative braking makes a hybrid or electric car even more efficient, and is perfectly safe.
Rule #5. No solar cells can be placed on the roof of a hybrid or electric car. This is another insane rule. Many people leave their car outside in the sun for hours. Solar cells on the roof would make a hybrid or electric car much more efficient, further reducing fuel usage.
This is just one case today in which a few regulations ruins innovation, keeps the city air filthy, and wastes billions of dollars in stupid product design.
The health care industry. This is one of the most regulated sectors of American and even moreso Canadian and European societies. In the latter nations, the government completely controls health care and makes whatever rules they wish governing its operation.
America is not as socialized or government-controlled. However, it is riddled with state and national regulations. Here are a few examples:
- Starting around 1900, The American Medical Association strongly lobbied for and succeeded in passing state licensing of physicians in America. This effectively destroyed the private medical care system that had served America very well for 120 years.
- Early in the 20th century, the American Medical Association managed to get a law passed that forbade community health associations. These were superb local health co-ops that served millions of people in America.
- A series of other regulations were passed around the same time. For example, many drugs are available by prescription only, and only licensed doctors are allowed to write prescriptions.
- Individuals may not go directly to a laboratory to obtain blood, urine or other tests. One must go to a licensed doctor, who then orders the laboratory test.
- Lab test results may not be sent directly to the patient, even though the patient technically owns the laboratory result. All lab test results must be mailed to a licensed doctor only. This and the rule above mean that the cost of a $10.00 lab test is often above $100.00 because two doctor visits are required – one to order the test and the other to pick up the result.
The HMO Act of 1974 overrode state laws that forbade paying doctors to deny care to people and paved the way for the establishment of for-profit HMOs. Health Maintainance Organizations (HMOs), health insurance companies and other types of health provider groups also must comply with dozens of government regulations.
- HIPAA (the Health Insurance Portability And Accountability Act) was passed in 1996 and went into effect in 2003. The privacy rules that were the result of it destroyed the privacy of the doctor-patient relationship, which used to be sacred. Now all patient information can be reported to up to 40 government agencies, including the Internal Revenue Service!
- Hospitals are governed by hundreds of regulations originating in a number of government agencies such as the Environmental Protection Agency, American Hospital Association and others.
- The Medicare and Medicaid programs passed in 1967-1968 contain thousands of pages of regulations.
- Medical schools and hospitals receive government subsidies, another type of regulation.
- The Affordable Care Act of 2010 (Obamacare) added over 1000 more pages of government regulations to the health care industry.
An enormous regulatory disaster is Obamacare or The Affordable Health Care Act of 2010. It was sold to the American people as a way to reduce health care costs. Instead, it has raised health care premiums as much as 100%.
Medical licensing, a form of government regulation that is presented to the public as a way to protect people from harm. Instead, it is a major cause of harm today. For details, read The Case Against Medical Licensing on this site.
The food industry. Corruption at the Food And Drug Administration is among the worst in the United States. It has been going on since its founding, over 100 years ago. It is the reason why junk food – soda pop, sugary foods, etc. are everywhere in our supermarkets while some extremely healthful food items such as raw certified dairy products are forbidden and illegal.
The financial industry. There are more and more rules for mutual funds and other investment companies that increase paperwork and just reduce the yields that investors obtain from their investments.
Taxes are another form of regulation of an industry. The 35% corporate tax rate in America is totally insane. It is higher than in any other nation, and it sends manufacturing and other jobs away from America, which needs them badly.
The American income tax law or code, as it is called, is over 7000 pages of confusing rules and regulations. It wastes billions of dollars for individuals and businesses who must comply with all the regulations.
The food and drug industries. Here the examples are many. The Food And Drug Administration is thoroughly corrupt, and is the main regulatory agency in this area. It allows thousands of toxic chemicals to be in our food. It forbids supplement manufacturers from making legitimate claims for their products. It allows vaccines to be marketed that are responsible for an epidemic of autism, seizures, ADHD and other serious problem in our children. I could go on.
Most state food regulatory agencies forbid the sale of raw, certified milk, an excellent food product, while allowing the sale of mountains of sugar-laden and chemical-laden junk foods.
Environmental rules. This is another area that is loaded with regulations that make it difficult for people to use their own land, and the latest Obama administration outrage is to classify carbon dioxide as a greenhouse gas that needs to be regulated.
Carbon dioxide is the most essential gas on the planet earth. Without it, all plant life would die, and our death would quickly follow. Yet they want to reduce it!
WHAT ARE POSSIBLE OPTIONS OR TYPES OF REGULATIONS?
1. Private regulation. This was the intent of the founders of America, and is an integral part of the capitalist economic system. Ways that the private sector regulates every area of the economy include:
A. The legal system. If someone harms you, you can sue them. This is a powerful private regulatory system.
B. The marketplace. If a product harms people or does not work, people tell their friends and write about it, and word spreads. The result usually is that the product stops selling and goes away.
C. Industries whose job it is to evaluate products and services. For example, the insurance industry continuously evaluates the safety of automobiles, home products, and much more.
They have to do this to arrive at how much they will charge for insurance on these items. If an item is dangerous, for example, then the insurance company must charge more money to insure it.
D. Organizations that review and test products. Examples in America are Consumer’s Union, Underwriter’s Laboratory, the Kosher certification program, organic food certification programs, the good housekeeping seal of approval, and others.
E. Blogs, websites, books, magazine articles and other ways people obtain information about products.
F. Branding. This is the establishment of a reputation for quality or some other attribute based upon a brand name. For example, Toyota is a brand of automobile with a good repair record. People “buy the brand” to assure themselves they are getting a quality product.
G. Vendors, wholesalers and retailers who distribute products. They often test products to decide if they wish to distribute them in their stores or websites, since their reputation often depends on the quality of the products they sell.
H. Copyrights, patents and trademarks. These are needed for branding, and they serve to let people know what they are buying, who owns the factories and technology, and what they are getting. They are essential to a free market economic system.
2. Government regulation. This is the use of a government agency with police power to tell everyone what they can and cannot buy, make, or sell.
3. No regulation. This never exists in a modern complex society. The mechanism of the marketplace always operates, even if it is technically forbidden. This means that people talk to one another, read articles about products, and find ways to learn about the value of products on their own.
There is a move on in the media and educational institutions to convince people that if regulations are not made by the government, then that is the same as no regulation. This is a complete lie!
PROBLEMS WITH GOVERNMENT REGULATION
The problems are:
1. Tyrannical. This means there is little, if any oversight by the people. Those who make the rules and regulations that we all must follow are not elected. This means they are not accountable to the people, and they cannot be voted out of office if they do a bad job.
Instead, a group of non-elected bureaucrats make the laws. When there is little or no input from the people, by definition, it is tyranny.
In contrast, a private regulatory system gets continuous input from all of the people who use the products and services through the mechanism of the marketplace. This just means that those who serve the people survive and thrive. Those products and services that do not serve the people tend to go away or are sued out of business.
2. Carries police power. This means that government regulation is pure centralized force or power over the people. There is nothing democratic or voluntary about it. In fact, it is not part of any “free” society. This has a demoralizing and stifling effect upon the population, who want to participate in their governance.
In contrast, a private regulatory system does not carry as much force of law, although the decisions of judges and juries do. However, there is much more input from the people.
3. Easily corrupted. Reasons for this are:
A. Little accountability. Government regulatory agencies are not accountable to the people. The agency employees who make the rules cannot easily be removed from their jobs for bad performance.
They become entrenched in their jobs and laugh at the electoral process because they often don’t care who is elected president, for example. They will still be around.
B. Small agencies are easy to corrupt. It is very easy, for example, for large pharmaceutical companies to corrupt the Food And Drug Administration. The reason is that the agency is tiny, employing a relatively small number of people. It is therefore easy to infiltrate, bribe, threaten or use other methods to corrupt them.
The result is that the corruption stifles innovation, ruins their competitors such as vitamin companies, impoverishes and sickens the people due to stupid rules and dangerous products such as vaccines and many drugs, and may even help destroy the entire nation.
The political party in America that supports government regulation the most is the Democratic Party.
Corrupting a private regulatory system. In contrast, corrupting thousands of website, blogs, articles, vendors, retailers, wholesalers, attorneys, judges, juries and more is quite difficult.
As a result, one notices that the forces pushing for more government regulation are often those in a position to bribe and corrupt the system such as certain large companies.
4. Inflexible and wasteful. Government regulations tend to be rigid, and “one size fits all”. This is because they are made by bureaucrats who are distant from those they regulate and the process is slow, politicized and cumbersome. As a result, government regulations can become outdated and do not respond to the needs of the people.
In contrast, the marketplace and the other private regulatory mechanisms are much faster, more up-to-date, and more individualized.
5. Often stupid. The reasons for this are:
A. It is very difficult for a small number of government employees to know what is best for millions of people spread across a large area. This is the truth, although government advocates never tend to agree.
B. The government does not attract the brightest people. Indeed, they often attract those most interested in job security.
C. Perverse incentives. Also, government employees are not rewarded for coming up with the best regulations, but rather for just keeping things on an even keel. In other words, there are perverse incentives with government regulations.
ADVANTAGES OF GOVERNMENT REGULATION
The main advantage is centralized power and control over the people. Government regulation is an important part of totalitarian and dictatorial rule. This is the hidden agenda behind government regulations. The truth is never expressed this way by those in control, because then people would not accept it.
So, for example, medical licensing is “sold” to the people as a way to protect them from the bad practice of medicine. In reality, it does not protect the people and makes medical care much less safe. However, it is effective to bring about centralized control of medical care by unelected, unaccountable licensing boards who decide which health practitioners will get jobs, and what they will do.
Millions of people are duped by this deception of promising that government regulation is wonderful when, in reality, it is not.
THE PROBLEMS WITH BAD GOVERNMENT REGULATIONS
This is serious business. Bad government regulation:
1. Stifles innovation.
2. entrenches monopolies and cartels.
3. Costs millions of jobs
4. Frustrates and infuriates the people.
5. Criminalizes the people
6. Sickens the people.
7. Deprives the people of the fruits of technology and human creativity.
8. Costly. Someone must pay all the bureaucrats to write the regulations, and they are high-paying jobs. Government is notoriously inefficient, so that also adds greatly to the cost of the regulatory state.
1. New legislation. There is pending legislation in America that would require that the Congress approve all new major regulations (HR 427 or the REINS Act of 2015). It passed the US House Of Representatives, but so far not the US Senate, so it is not yet the law of the land.
2. Sunset provisions. This means that all regulations would expire after a certain time, such as 10 years. Then every regulation would have to be reviewed and passed again to continue.
3. A different attitude. It is the attitude that maybe we would be better off with more private regulation and less government regulation. For more on this important topic, please see the section below on Private Regulation.
ADVANTAGES OF A PRIVATE REGULATORY SYSTEM
1. No cost to taxpayers. This is very important because supporting the 47 regulatory agencies in America, for example, cost billions of dollars. Private regulatory groups are generally paid for by private industries, and sometimes by consumers.
2. If a regulatory group is not doing a good job, another competing group can form, and will often take over. This never happens with a government bureaucracy.
3. Incentives are better. Government regulators often want to hold on to their jobs and increase their importance. The more rules they pass, the more power they have.
Private groups are there to protect and promote their industries. More rules are not helpful for this. So they don’t tend to over-regulate.
4. Private regulatory groups are often much “closer to the action”. Government regulators often work in Washington, DC or other capital cities, and are often somewhat out of touch with those whom they regulate.
5. Corruption tends to be less common among private regulators. The reason is they can be fired more easily and their work is often more transparent, or easily seen.
All aspects of free market economies contribute to reg – especially pricing.
Because the whole “economy” is about regulation.
Government regs – contrived, external, forced, on a complex, self-regulating system. Like putting people in prison instead of letting them walk around.
Examples of regulatory agencies in the USA. (Other nations have a similar setup). These include Food And Drug Administration, Federal Communications Commission, Federal Trade Commission, Environmental Protection Agency, Occupational Safety And Health Administration, Consumer Protection Agency, Housing And Urban Development Agency, Equal Opportunity Employment Commission, Labor Department, Agriculture Department, Federal Power Commission, Security And Exchange Commission, Federal Emergency Management Agency, Bureau Of Indian Affairs, National Forest Service, Bureau Of Land Management, Internal Revenue Service, Veterans Administration, and the list goes on. The USA has 47 of these agencies.