Is Regulation Good for You?
By Staff News & Analysis - March 15, 2012

The Inherent Tensions of Regulation … (If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. —The Federalist, Number 51) … In most regulatory programs, there is an inherent tension between promoting the industry in question and protecting the public … The industry has the power of political access through campaign contributions, corporate officers who rub shoulders with politicians at elite events, and the power of high-priced legal help. –

Dominant Social Theme: Regulation ain't so hot, but maybe it can be …

Free-Market Analysis: This article posted over at is an interesting one. It is written by Dr. Mark Funkhouser, a former Kansas City mayor and auditor, who is the director of the Governing Institute.

It focuses on the "big picture" of regulation, which is that while private industry can give rise to problems and quarrels, regulation itself is also flawed. The proximate cause of the article, however, is the pushback that New York Mayor Bloomberg is receiving over his program, begun in July 2010, of giving letter grades to the city's restaurants for cleanliness, etc.

Funkhouser points out that this has apparently resulted in a 13.5 percent drop in reported salmonella in the city. "This is good news, right?" Indeed it is. Why then, the pushback? Funkhouser writes:

Andrew Rigie, a spokesman for the New York Restaurant Association, says the grading system is punitive and a financial burden on small-business owners. City Council Speaker Christine Quinn, who supports the system, was reported to be nonetheless critical of it, saying in a statement that the city's data show "a wide variability" in grades from "inspector to inspector in the same restaurant and an enormous increase in fines."

I have done more than a hundred audits of government inspection programs, and, because those programs were not run by angels, most of my audits uncovered problems with them, nearly all of which favored the regulated industry …

Men (and women) are not angels, and neither are those who govern them. No doubt the vast majority of restaurateurs run clean kitchens and eating at their establishments is safe. And there is no doubt, as well, that those who run inspection and regulatory programs make errors and that their systems can be improved. But the purpose of government includes carrying out regulatory programs required to protect public health. New York City's system of giving letter grades to restaurants is a simple and effective way of communicating important information to the public—one that has resulted in improving the health of the community. That really should be good news to everybody.

From a libertarian standpoint, of course, the argument is not nearly so clear. The point made by libertarians and free-market thinkers generally is that government regulatory facilities drive out private ones.

In a truly free market, private watchdog groups would arise naturally. (In the US, in fact, they did prior to the regulatory flood of the 20th century.) These watchdog groups would likely be more effective than anything the government can muster.

That's because government regulators are monopolistic. There is only one of them. Watchdog groups should be subject to competition just like any other endeavor. If one watchdog group is bought off in a private economy, another one can spring up to take its place, acquiring credibility the "bought" outfit has forfeited.

In a government-mandated regulatory environment this sort of evolution is not possible. Inevitably, the regulator is subject to increased "regulatory capture" via the biggest of its industry players. These companies will seed the regulator with their chosen enablers an influence regulation to conform to their needs.

Within this context, regulatory democracies end up doing two things: They mandate by law whatever is good for the largest industrial entities and they raise the barriers to entry for smaller and more innovative outfits.

By depriving the regulatory function of competition, those behind this system continually generate more corrupt and monopolistic practices. Government regulation becomes a petri dish, breeding the "worst" instead of the "best" practices.

Recently, the US's FDA has been in the news for prosecuting a "war" against farmers who produce and sell raw milk. While the FDA has claimed it is motivated only by its mandate to protect consumers from sickness, it is hard to avoid the suspicion that the FDA is actually doing the bidding of the largest producers that would rather irradiate (pasteurize) their dairy products than go to the expense of cleaning up their workplaces. Here's an excerpt from an Examiner article on the subject, entitled "Obama Continues War on Raw Milk."

In a continued effort to thwart the will of the people, President Obama's administration is systematically shutting down dairy farmers in America who are doing nothing more than supplying a demand for raw milk over pasteurized milk. Recently the federal government shut down another dairy farm in Pennsylvania for selling its raw cow milk to citizens in Maryland without a contents label.

The dairy farm was not shut down for making people sick, in fact nowhere in the government's complaint do they claim anyone got sick from consuming the raw milk. The only violation was for selling a banned substance across state lines without a label. So one wonders who benefited and who was hurt by this costly two year investigation by President Obama's FDA? This, and others like it, are not situations where raw milk was put in the grocer cooler and consumers mistakenly thought they were drinking pasteurized milk.

We can see in this narrative the signs of the regulatory capture that we have often tried to explain. The FDA is acting as an agent of the big dairy farmers, even to the point of basically banning the kinds of raw milk products that have fed people for thousands of years.

But it is even worse than that. As large and powerful countries go down the road of empire, the regulatory facilities become increasingly corrupt and cruel. This is because the positions they are forced to take in defense of the largest industrial players are increasingly difficult to justify.

Authoritarianism is inevitably the result, and the US in particular is well along that path. Here is an excerpt of an article that provides us with just one example of this trend, reported initially by Natural News and rebroadcast by Alex Jones:

NaturalNews can now report that 65-year-old senior citizen James Stewart, a raw milk farmer with no criminal history, was nearly tortured to death in the LA County jail this past week. He survived a "week of torturous Hell" at the hands of LA County jail keepers who subjected him to starvation, sleep deprivation, hypothermia, loss of blood circulation to extremities, verbal intimidation, involuntary medical testing and even subjected him to over 30 hours of raw biological sewage filth containing dangerous pathogens.

This is from a county that has targeted and terrorized James Stewart for the supposed crime of selling fresh milk containing "dangerous pathogens." That's right – the only "crime" James has ever committed is being the milk man and distributing milk that is openly and honestly kept fresh and raw instead of pasteurized. So as part of his punishment of advocating raw cow's milk, he was tortured with raw human sewage at the LA County jail.

Back to our original topic. The sad truth is that good people like former mayor Dr. Mark Funkhouser want to focus on the theoretical aspects of regulatory democracy within the context of "improving" society by keeping people safe.

But countries, like regulations, have an inevitable progression, especially when they are being driven by a shadowy power elite bent on accumulating more and more power. The progression is toward totalitarianism via evermore oppressive regulatory mechanisms.

It is our contention that the modern-day Western elites with whom we find ourselves saddled are after nothing less than world government via what we call mercantilism. This process involves the creation of more and more regulatory fiat, especially in the area of finance, in order to eventually bankrupt nation states in the process of creating ever more aggressive global governance.

Absent this elite and its goal of world domination, a modest amount of government might be tolerable to most people. But unfortunately, as is often the case, unscrupulous elites have hijacked the process for their own ends. Regulation, in the hands of these people, is a kind of weapon.

After Thoughts

One way to blunt this weapon is to reduce the size and clout of government. Another way is to try to drop out of the system as much as possible. You won't be missing much. These days, governance is not your friend, if it ever was.

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