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WHY DEREGULATION DOESN'T WORK PDF Print E-mail
Written by Jim Jordal   
Monday, 06 February 2012

WHY DEREGULATION DOESN’T WORK

By Jim Jordal

Your iniquities have turned away these things, and your sins have withheld good from you. For among my people are found wicked men: they watch, as fowlers lie in wait; they set a trap, they catch men. As a cage is full of birds, so are their houses full of deceit: therefore they are become great, and grow rich. They grow fat, they shine: yes, they overpass in deeds of wickedness; they don't plead the cause, the cause of the fatherless, that they may prosper; and the right of the needy they don't judge.

Jeremiah 5:25-28, WEB

Conservative economists and politicians educated in the free market ideas of famous economist Milton Friedman believe that national economic success rests on free markets incorporating deregulation, privatization, and reduction or removal of social safety nets. Friedman’s "Chicago School" spread these ideas around the earth in the 40 or so years that Friedman held sway at that school. Coupled with the libertarian ideas of writer Ayn Rand, the anti-collectivist writings of Austrian Friedrich von Heyek, and the now virtually discredited Supply Side (Trickle-Down) economics of Arthur Laffer and others, they form much of the basis for today’s right wing social policy.

According to this school of economic thought, the public benefits from an outpouring of cheap goods and services that becomes available when business suppliers are freed from excessive taxation and governmental restrictions that up to now have limited their willingness to produce. Offered in markets free from government controls this cornucopia of goods provides high living standards for the public and jobs for workers. Unfortunately that economic model fails to explain where the money for this heightened public demand will come from.

Deregulators also believe that in the event of trouble free markets will always correct themselves. That is, if they are left alone by government. So when disaster occurs, as it did the recent banking debacle, they excuse it by saying the problem wasn’t a lack of regulation, but too much regulation. In other words, "The market always works: leave it alone."

An entirely free market means that all participants have free choice as to how they will participate in it. They can enter or leave at will. They can freely buy or sell according to conditions in the market. The simple interaction of supply and demand determines price. Left alone it will always seek equilibrium, or an adequate supply balanced by demand sufficient to consume it at a reasonable price.

But can a market be "left alone"? With no restraints on market behavior, players with more intelligence, foresight, or just plain ruthlessness will seek to skew the market to their favor. An example of this was John D. Rockefeller’s Standard Oil Company during the latter parts of the nineteenth century. So successful was he in abusing his freedom from government regulation that he was able to bend the market so that he not only got rebates from the railroads for shipping his oil products, but he also got rebates for what his competitors shipped. So he used the free market to gain control of the market. So much for totally free markets.

The prophet Jeremiah’s diatribe against the wicked men of his day illustrates the basic reason why deregulation fails. Free markets provide no way to protect innocent participants from unscrupulous speculators and manipulators who use their freedom to harm others. Jeremiah said they watched for an opportunity to use their manipulative, deceptive "skills" to set traps for unwary, helpless victims. Their houses are full of deceit, therefore they grow great and fat on the losses of others (think about Wall Street and the shady mortgage machinations used to trap the unwary). Then they excuse their behavior with the comment, "It’s just how the market works." But the worst of Jeremiah’s charges is that in all this they do not care what happens to the poor, and do not judge the rights of the less fortunate. That’s why markets free of regulation don’t work—they can’t compensate for the actions of greedy, brazen market manipulators.

If you still believe that government regulation to protect public safety is unnecessary, you should read Upton Sinclair’s 1906 novel, The Jungle, exposing horrible working and health conditions in the Chicago meat packing industry. It is said that after reading it, President Theodore Roosevelt would no longer eat sausage, and began calling upon Congress to legislate what now is known as the Pure Food and Drug Act. So much for deregulation! It didn’t work then and it doesn’t work now!