Make Government Regulation Optional

Who do you trust, government bureaucrats or the market?

GEORGE NOGA
OCT 22, 2023

If you like your government regulations, you can keep them. All current and future regulations at the local, state and federal level would remain in force. However, any business in America that so desires could opt out of all regulation – excepting only environmental regulations and natural monopolies.

35 Years Owning a Regulated Business

I have firsthand experience with the perniciousness of government regulation as I owned and managed an investment company for 35 years. My business was regulated by the SEC, NASD, FINRA and by each of the 30 odd states in which we did business. The regulations were so numerous, complex, arcane and even contradictory that it was impossible to be in full compliance. I was perpetually at the mercy of any benighted regulator, who didn’t know the difference between a stock and a bond.

Despite all the lunacy, I would not have objected to the onerous regulatory regimen if it served its purpose, i.e. protection of investors. Instead, the regulations confused and harmed investors by giving them a false sense of security. Regulators behave in accordance with the tenets of public sector economics, i.e. they respond to personal incentives rather than the interest of investors. One need look no further than Madoff or FTX to grasp the utter failure of regulation. Madoff and FTX perpetrated multibillion dollar frauds lasting decades despite numerous regulatory inspections. Regulators even ignored tips that included detailed roadmaps to uncover the fraud.

Make Regulation Optional

Any business in America would be free to opt out of all regulation simply by prominently displaying the word “UNREGULATED” on all signage, letterhead, advertisements and any other materials. Businesses that choose to remain regulated could proclaim: “We proudly adhere to all government regulations”. It’s that simple. Opting out of all regulations means not just consumer regulation but terms of employment, health, workplace safety – in short: everything. For readers who want more details about how this works, I recommend a book by Charles Murray¹

The benefits from making regulation optional are breathtaking. It would save $3 trillion per year in regulatory costs and increase GDP nearly one percentage point annually.² American families would benefit as regulatory costs are over 20% of payroll. Moreover, the cost of most goods and services would plunge. Small businesses would thrive as large corporations use regulation to quash smaller firms.

Product Safety: Who Do You Trust?

There is a 130-year-old organization whose sole mission is to protect consumers. It has over 150 laboratories and employs 10,000 people, many of whom are scientists. It has evaluated 100,000 products made by 70,000 manufacturers. Of course, I must be referring to the US Consumer Product Safety Commission, the Commerce Department or the Federal Trade Commission. No, no and no; I am referring to Underwriters Laboratories, a privately owned company, no one is forced to use, that thrives solely by dint of its impeccable reputation. Many government regulations (including several states) shamelessly copy the standards set by UL.

Another private company held in high esteem by the public is Consumer Reports; founded 88 years ago, it is the most trusted independent testing organization in the world. CR has consistently preceded and outshone government such as with seat belts, cigarettes, microwave ovens, child safety seats, vehicle rollovers, lawnmowers, water supply, kerosene heaters and door locks to name but a few.

Businesses deliver quality, safety and value in many ways. The primary method is branding; when you buy a product or service, the reputation of the provider is on the line. Another method is franchising, with strict quality control imposed by the franchiser. A third method is independent rating services such as UL and CR noted supra. A powerful method is social media where just a few bad reviews can sink any business. As von Mises said, “The market is a democracy in which every penny gives a right to vote.” The most powerful force on earth is a consumer armed with a free choice.

So, who do you trust to have the consumers’ interest at heart – a faceless bureaucrat behaving in accordance with the tenets of public sector economics, or a businessman who will go the superhuman lengths to protect the integrity and value of his brand?

I choose the businessman; however, if you like your government regulations, you can keep them. What’s not to like?