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Free Market Flaw: No Regulations Would Create Need for Regulations

It seems rather self evident to me that regulations are not, in and of themselves, evil and unnecessary. Certainly, some regulations may be far reaching, but most regulations on businesses became necessary to protect consumers because businesses were not self-regulating to protect the interests of consumers.

This is not true according to those who argue in favor of Austrian, or free market, economics. It is their contention that consumers will dictate to businesses what standards are necessary in order to retain their patronage. Furthermore, those businesses that violate safe standards would be subject to damages claims in courts when, or if, their products, indeed, damage consumers.

After confirming with them that building codes are included in unnecessary regulations, I have asked how fair it is for a consumer who hires a builder to construct a house made of fine products to safe standards to resort to judicial resolution if the builder makes the house out of cardboard with the electrical circuitry comprised of bare wires. The builder, after all, would be able to defend himself with the money the consumer paid for the house, while the consumer would be required to raise additional money to bring the lawsuit. Is there no advantage to having inspectors make certain that the house is built to sufficient standards to be safe and ready for occupation?

They usually reply with something on the order of it is the duty of the consumer to assure himself or herself that the builder is meeting the standards of the contract during the building process. If they are not in the area so they can do so, there will be companies they can hire as agents to do so.

Okay, but let’s say they don’t, so they are stuck with judicial resolution. How about the neighbors to that unsafe house? Do they not also have claims for damages because now there is this terribly built, unsafe house next to their homes?

Of course they would. Their claims would be against both the person who contracted the building, and the builder who constructed the house. So, they, too, would be required to raise money in order to adjudicate their claims against the damaging parties.

It would not take long, in my opinion, for the public to seek the government’s assistance in creating a set of standards to which buildings must be built, and to hire inspectors to make certain those standards were being met during the building process.

Regulations on the standards for foods are also unnecessary according to proponents of free market economics. Similar attempts to trap them into admitting that doing away with regulations on what standards food must meet in order to be marketable to the public result in the same circular logic that those who are damaged would be able to seek retribution through legal means. There would be nothing illegal about selling poisonous food, or poison as food, but it would create damage that someone who becomes ill or dies because of it would be able to sue them over.

I think removing regulations on what can and cannot be sold as food would create the need for regulations governing what can and cannot be sold as food.

It does not seem to faze the proponent regardless of which regulation is used as an example. Banking regulations and consumer protection from usury, interest calculations, or protection of deposits - they are all unnecessary. Worker safety regulations, minimum wage laws, overtime pay standards, and even child labor laws are all unnecessary.

If we try to revisit history to determine why these protections were put into place, it is often countered with the overly simplistic rebuttal that those all happened when there was not a totally free market. While that may be true, it was not a totally free market when these regulations came to be because the need for regulations had already been created by businesses violating consumer rights, and abusing labor through such things as slavery and calculating that paying for funerals when sued was less expensive than making workplaces safe, especially when the pay was insufficient for a damaged party to bring a lawsuit.

We are, today, seeing banks lose big money making risky investments that were illegal by regulations a mere thirty years ago, and then turning to the government for bailouts with the alternative being the government standing good on deposit guarantees. We are seeing businesses relocate headquarters and production plants from states that protect workers’s rights and safety to states or countries that do not. We are seeing mega-corporations avoiding taxation on profits by hiding the profits in foreign banks.

According to free market theorists, these things are simply good business practices. I think they can be more attributed to greed, and I also believe that these actions are creating the need for regulations to prevent the events from occurring and recurring.

Some other things I've written about: