Government Regulation, the Gift that Keeps on Giving

In the essay “Antitrust,” which is contained in Ayn Rand’s “Capitalism: The Unknown Ideal,” Alan Greenspan, long before he became chairman of the Federal Reserve, discussed the emergence of antitrust legislation at the end of the 19th century.

In the early 19th century, railroads developed in the East among stiff competition, between different railroads as well as with older forms of transportation.  By the 1860’s a political movement developed demanding that the railroads move west and tie California to the rest of the country.  This in spite of the fact there was insufficient freight or passenger volume to make economic sense.  This led the government to decide to subsidize the construction of the transcontinental railroads.  These subsidies attracted the type of “businessmen” you might expect: those more adept at playing politics than building railroads.  More interested in obtaining land grants than in moving cargo.  Over a period of 4 years, nearly 100 million acres of these land grants were given to individual railroads, which eliminated the possibility of competition in those areas by other railroads and other forms of transportation such as wagons could not afford to compete.

As Alan Greenspan put it:

The western railroads were true monopolies in the textbook sense of the word.  They could, and did, behave with an aura of arbitrary power.   But that power was not derived from a free market.  It stemmed from governmental subsidies and governmental restrictions.

By the late 19th century, western train traffic increased sufficiently that there developed real competition.  The early railroads, in spite of their initial advantages, could not withstand the competition.  It was too late however as the abuses of these early railroads led to the passage of regulations, the Interstate Commerce Act and the Sherman Act, designed to remedy these ills even as the government evaded their role in causing them.  These regulations caused their own problems which “required” further regulation to fix and so on.

This pattern can be seen continuing to this day:

  • In the 1930’s, government policies designed to protect the income of farmers via price controls and other measures in agriculture led to expanding food assistance programs to help the poor afford the artificially expensive food.  To this day, farmers are often required to give up or destroy part of their harvests to maintain “stable prices” but at the expense of individual farmers and consumers.
  • In the 1940’s, during World War II, the government froze wages, among other prices, but allowed companies to offer tax-free fringe benefits such as health insurance in an attempt to attract employees.  By separating the patient from the cost of their health care, this contributed to the rapid increase in health care costs which led in turn to the perceived need of such programs as Medicaid, Medicare and now Obamacare.  I wrote about this here.
  • Government policies in housing such as mortgage interest deductions, the Community Reinvestment Act, the Federal Reserve pushing interest rates down (and later reversing them,) and later the concept of “too big to fail” were the primary cause of the financial crisis which in turn led to further regulations such as Dodd-Frank.  (There is a great article from 2009 detailing how the CRA contributed to the financial crisis.)
  • I am sure a little thought could produce many more examples.

Prediction: I have no doubt that if President Obama pushes through his policies regarding fossil fuels, we will see a large increase in the cost of energy in the United States which will quickly be followed by a new government program, well really a massive expansion of an existing one, to help the “poor” pay for the now more expensive energy.

Note that in all these cases, as with the railroads before them, it is the free market that was/is blamed for the problems rather than the government intervention that was/is at their root.  Always the tendency is to correct a bad law with a new law rather than simply getting rid of the bad law.  The only beneficiary of such a practice is the government, which sees its power increase over time.  (For another example, consider how the bad law of government support/enforcement for labor unions, which denies employers (and in some cases employees) the right to not deal with unions if they do not want to, has been “fixed” in some places by right to work laws which deny employers the right to deal with unions if they want to.)

The real solution?  Get government out of the business of business and back to its essential function of protecting the actual individual rights of the citizens.


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  1. Pingback: Health Insurance: Suggestions Towards a Free Market

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