In an early 2012 article for The American, Arnold Kling proposed a broad change in the way that government regulates business. He wrote:
When we think of regulation, we
think of specific rules that spell out the boundaries between what is approved
and what is forbidden. For example, requiring credit card issuers to give 45
days notice prior to a rate increase. I call this bright-line regulation (BLR).
What I want to propose is an
alternative approach, called principles-based regulation (PBR). With PBR,
legislation would lay out broad but well-defined principles that businesses are
expected to follow. Administrative agencies would audit businesses to identify
strengths and weaknesses in their systems for applying those principles, and
they would punish weaknesses by imposing fines. Finally, the Department of
Justice would prosecute corporate leaders who flagrantly violate principles or
who are negligent in ensuring compliance with those principles.
The problem, Kling claims, is that
“compliance with BLR is far too easy. The bankers are always
able to outmaneuver the regulators, staying within the letter of the rules
while mocking their spirit.” In other words, when bankers obey the law, and
only take actions that are not legally forbidden, they are "mocking the spirit" of the regulators' noble intentions, which are grounded in unlimited power but hamstrung by bright-line regulation! Kling's solution is to unleash that unlimited power by turning government bureaucrats loose to rifle through ("audit") every business's operation from top to bottom, on any whim, looking for violations of the principles it has laid down, and backed up by the government's awesome criminal prosecutorial powers.
First, let’s be clear about what we
mean by “regulation.” I would define a “regulation” broadly as any government rule, law, or dictate that "entails the legal imposition or prohibition of courses of private action in which no actual (or intended) rights-violations are evident," and which hinder the individual's inalienable right to act on his own judgement in pursuit of his own goals, values, welfare, and happiness. The antithesis of government regulation is objective law; clearly defined statutes strictly and explicitly delimited to forbidding rights-violating actions like murder, rape, robbery, or fraud.
Kling’s PBR is far worse
that his BLR. As an example of BLR, Kling singles out
“requiring credit
card issuers to give 45 days notice prior to a rate increase.” It’s true that
it is wrong for government to issue rules of this kind. Such issues are the
province of the credit card issuer and the customers’ willingness or
unwillingness to accept them (by deciding whether or not to use that particular
card). But at least the issuer has a
clearly defined rule.
Now consider
Kling’s first PBR: "No business should sell a
consumer a product knowing that the consumer has no chance of benefiting from
that product.” This may be a good standard for a business to adopt. But, in the hands of government officials, it is tyranny; and, in fact, terroristic. This principle replaces a firm, objectively
understandable BLR rule—however bad--with the infinitely more destructive arbitrary
edicts of government officials, who will have the power to dictate what will
benefit “consumers” and what won’t. Not only does this principle place the
business in the position of not knowing what product or service he may offer
until some bureaucrat determines, after the fact, what benefit it will bring to consumers. It
also violates the rights of consumers to make their own judgments as to what
will or will not benefit them, and the rights of businessmen to shape their own governing standards.
There is an inherent fallacy
involved here, as well. The “consumer” is treated as a separate entity,
helpless in the face of those slick merchants. But, that banker--or plumber, department store owner, computer manufacturer, or other producer--is also a
consumer. Are we to assume that, as a banker, he is smart enough to know what
is in the best interests of his customers, but—as a consumer—is somehow
incapable of deciding what is in his own
best interests as a buyer of cars, food, computers, haircuts, or even as a
borrower himself?
Kling’s cure is worse than the
proverbial disease. He would replace regulation-by-micromanagement—which, bad and arbitrary as they are, at least generally produces rules that are clear enough to understand—with the vastly more
destructive ex-post-facto regulation, in which the businessman won’t know he
has violated any law until some bureaucrat decides that he has. Furthermore,
Kling’s PBR would pretty much demolish freedom of contract, which is based on each
participant’s freedom to decide what is in his own best interest.
This is not to say that laws should
not be based on principles. It is to say that laws should be based on the right
principles, which means the principle that government should protect individual
rights. On that premise, “principles-based regulation” is a contradiction in
terms, since on principle government has no right to regulate economic
activity.
Kling’s theory of regulation would
expand the power, scope, and arbitrariness of government regulatory power--a power it shouldn't have in the first place. That Kling
offers his theory under the auspices of the allegedly pro-free market American Enterprise Institute is all the more egregious
because he concedes the statist premise that capitalism is unworkable without government regulation. Worse--and more fundamentally--Kling obliterates the very meaning of capitalism, as if it doesn’t exist. A statist think-tank could not have done a more thorough job of undermining capitalism. If capitalism's proponents acknowledge not only the necessity of government regulation, but the need to expand that regulation, then the battle for liberty is over. What is left for defenders of free market capitalism--i.e., liberty--to defend?
The opposite course is the correct
one. Capitalism is, by philosophic definition, the complete separation of economics from state. Rather than offer plans to "better" regulate business, authentic advocates of free markets work to reduce and ultimately end
government regulation, toward the ultimate goal of establishing laissez-faire
capitalism.
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