Ron Paul: Why More Regulation Makes Things Worse




Ron Paul explains why those who blame the free market for the financial crisis are wrong, and how excessive regulation encourages moral corruption as well as blind, irrational trust in government oversight.

The Moral Hazard of Regulation

by Ron Paul

Since the bailout bill passed, I have been frequently disturbed to hear “experts” wrongly blaming the free market for our recent economic problems and calling for more regulation. In fact, further regulation can only make things worse.

It is important to understand that regulators are not omniscient. It is not feasible for them to anticipate every possible thing that could go wrong with whatever industry or activity they are regulating. They are making their best guesses when formulating rules. It is often difficult for those being regulated to understand the many complex rules they are expected to follow. Very wealthy corporations hire attorneys who may discover a myriad of loopholes to exploit and render the spirit of the regulations null and void. For this reason, heavy regulation favors big business against those small businesses who cannot afford high-priced attorneys.

The other problem is the trust that people blindly put in regulations, and the moral hazard this creates. Too many people trust government regulators so completely that they abdicate their own common sense to these government bureaucrats. They trust that if something violates no law, it must be safe. How many scams have “It’s perfectly legal” as a hypnotic selling point, luring in the gullible?

Many people did not understand the financial house of cards that are derivatives, but since they were legal and promised a great return, people invested. It is much the same in any area rife with government involvement. Many feel that just because their children are getting good grades at a government school, they are getting a good education. After all, they are passing the government-mandated litmus test. But, this does not guarantee educational excellence. Neither is it always the case that a child who does NOT achieve good marks in school is going to be unsuccessful in life.

Is your drinking water safe, just because the government says it is? Is the internet going to magically become safer for your children if the government approves regulations on it? I would caution any parent against believing this would be the case. Nothing should take the place of your own common sense and due diligence.

These principles explain why the free market works so much better than a centrally planned economy. With central planning, everything shifts from one’s own judgment about safety, wisdom and relative benefits of a behavior, to the discretion of government bureaucrats. The question then becomes “what can I get away with,” and there will always be advantages for those who can afford lawyers to find the loopholes. The result then is that bad behavior, that would quickly fail under the free market, is propped up, protected and perpetuated, and sometimes good behavior is actually discouraged.

Regulation can actually benefit big business and corporate greed, while simultaneously killing small businesses that are the backbone of our now faltering economy. This is why I get so upset every time someone claims regulation can resolve the crisis that we are in. Rather, it will only exacerbate it.



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78 Comments:

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  2. Wow, awesome blog layout! How long have you been blogging for? you made blogging look easy. The overall look of your website is magnificent, as well as the content!. Thanks For Your article about Ron Paul: Why More Regulation Makes Things Worse .

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  3. Pingback: Regulation – less is more.

  4. This is a primary example of why regulations are important in some instances...

    http://threatpost.com/en_us/blogs/market-fail-regulations-may-be-only-hope-securing-critical-infrastructure-020112

    Also, think back to the Sony attacks, specifically the attacks on the Playstation network. Sony avoided heading their own network administrators advice, no doubt because of the costs that would be incurred to secure their network... AKA the consumers data.

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  5. There seems to be an argument about government or no government, when it should be about what government should and should not be. There are good laws, just laws and there are bad laws, unjust laws. I would wholeheartedly support a government that created and implemented just laws. This government does not. But I certainly DO NOT want business interests to 'police themselves' or for the market to 'regulate itself'. The market is amoral. And anyone who thinks that consumers won't patronize abusive businesses is deluded. Business interests spend billions of dollars lying to the public about everything that will increase their profits.

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  6. "Is your drinking water safe just because the government says it is?"

    More likely than if a polluting company says it is. I don't think we'd be better off without the Clean Air Act, Clean Water Act, or Safe Drinking Water Act. I don't trust private companies to clean up their own pollution. Environmental regulations are a good thing for the most part. So are lots of regulation. So it's meaningless to rail against regulation in a general way. C'mon, Rep. Paul. What specific regulations would you get rid of?

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  7. For some reason I can't paste a YouTube link in this reply field. :-/See the Milton Friedman video posted above for a better explanation of how and why the ICC was formed, as well it's negative (opposite) consequences...

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  8. Great point - Government gets a 'free pass' when they fail to protect us because we have no legal recourse, and simply have to accept their failures. This begs the question, "What is government's incentive for keeping us safe?". If we assume that 'ethics' or 'morality' are the only force driving government's actions, then why would we assume that the same force does NOT exist in the private sector - in ADDITION to their financial motive...?

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  9. http://www.youtube.com/watch?v=Biu7bJAfVNI

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