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Deregulation is the practice of removing state regulations on the economy, usually with the stated aim of restoring a free market and/or cutting down on the size of the State.
Deregulation that actually works
Historically, a good deal of deregulation was made in response to socialist-inspired economic policies that sought to put the "means of production" in State hands by heavy regulation of private business owners rather than by outright nationalizations; a policy that both socialists and laissez-faire capitalists had issues with.
Much of this deregulation was merely an acknowledgment that the laws of economics cannot be legislated out of existence. An example of this can be seen in the two oil crises of the 1970s. During the 1973 oil crisis, price controls were imposed, causing massive shortages and lines at gas stations. In 1979, by contrast, oil prices were deregulated, which made shortages much less severe.
Regulations can also be counterproductive in a number of ways. For instance, meeting regulatory requirements usually costs more money for a business owner, which increases barriers for entry into a market. This favors established businesses and thus reduces competition. Lobbyists often have a great deal of input when it comes to crafting regulations, which allows them to sneak exemptions for their businesses into the regulatory code.
“”The question we ask today is not whether our government is too big or too small, but whether it works.
|—Barack Obama's inaugural address|
However, some conceptions of deregulation go much further than described above. Historically, the prevailing view was that state and private ownership of resources could be good or bad depending on time, place, and circumstance. Socialists took a much more black-and-white view, viz., "State good, private business owners bad." But the more enthusiastic proponents of deregulation, instead of merely rejecting that view, turn it on its head, so that it becomes "State bad, private business owners good."
To these people, deregulation is as much of a magic cure-all as nationalization is to the socialist. It is unthinkable to their minds that any regulations were enacted to protect the public, or that such regulations do protect the public even if they were intended to. They believe that any problem can be solved by removing some regulation or other, since the free market automatically punishes anyone who does economic harm. Nor is the scope of this sort of deregulation limited to economic matters; it also includes such regulations as safety standards.
These deregulation proponents also invert the satanic mold into which private business owners are cast by socialists, assigning them a Christlike sinlessness instead. This, of course, proves a grievous error in the case of quacks and hucksters who are just out to swindle people.
Just like how regulation can be counter-productive to fairness and competition, wanton deregulation can also lead to economic ills. The most productive countries in the world also have the shortest work-hours, and when Sweden implemented a six-hour work day worker productivity, satisfaction, and revenue increased, while turnover and absenteeism decreased. Similarly, rent control (which is often seen as borderline blasphemous in neoclassical economics) is deemed necessary in New York State to keep key workers from leaving particular areas, while it has also been argued that rent regulation incentivizes tenants to upgrade and maintain their homes as opposed to keeping them squalid so landlords can't claim the added value for themselves. Completely ripping apart good regulations can then blow up in the face of free marketers: at best, workers become sluggish, strike more often, and end up trashing their apartments as they move out of viable city sectors; at worst, you can end up getting a Financial Apocalypse.
Stealth deregulation is a strategy by which regulatory agencies are made ineffective through roundabout ways. The executive can bypass the legislative process by deliberately appointing incompetent regulators or ones who have ties to the industry they are supposed to regulate. The majority party in Congress, having more control over the budgetary process, can squeeze through budgets that de-fund certain regulatory agencies to ensure that they are understaffed and impotent. Regulatory capture is a means by which private entities can "deregulate." This simply involves bribery (though this is often done through more indirect means such as offering the regulator a position at the company so many years down the line).
- We know about FoxConn installing anti-suicide netting because of how bad their working conditions are, yet iPhone sales don't slow.
- The Ponzi scheme of that noted financial fraudster, Bernie Madoff, is often cited as an example of why deregulation is not the solution to everything. To some degree, this is a straw man, firstly because nobody is suggesting that Madoff's sort of fraud be legalized, and secondly because it is not so much an example of the consequences of deregulation as of the consequences of incompetence among regulators. For an entire decade before Madoff was busted, most investment firms knew very well that Madoff's numbers were dodgy and he was ripping people off, and would not deal with him. In fact, one financial analyst, Harry Markopolos, having determined that the numbers were fraudulent, spent several years unsuccessfully trying to convince the U.S. Securities and Exchange Commission of this fact.
- A better example of why deregulation might not be beneficial in all cases is the controversy surrounding the Ford Pinto. That subcompact 1970s-era automobile had a gas tank that had the unfortunate tendency to explode when the car was rear-ended, due to a substandard design. At the time, federal safety regulations were not tight enough as to require a more sound design, and it was up to Ford to determine whether they should add one. This made the question a matter of dollars and cents. At that time, the National Highway Traffic Safety Administration set the value of a human life at $200,000. The repair necessary to make the gas tank safer would cost Ford $11 per car, but Ford determined it would not save enough 200,000-dollar lives to be worth it. Hence, the free market was useless when it came to saving the lives of those people who died in Pinto gas tank explosions; but just look at the astounding $11 it saved anyone who bought a Pinto!
If people don't care about abuses in a world with regulations, why would they care at all without regulations? The subtext to that claim is, and if people keep buying their products, that’s OK too, because it's the will of the market and who are we to second guess that?
Maybe a few genuinely believe that racist business owners will actually go out of business, but a large majority would frankly not care. Even if they aren’t racist themselves, they don’t consider non-governmental institutionalized ‘isms to be legitimate problems worthy of being solved at the cost of any modicum of individual freedom.
- Universal health care: Countries besides the U.S. regulate drug prices. That's why a cancer treatment which costs 5k/month in the US costs 1k/month in the UK and Canada. Canadians have no one but their government to thank, and Americans have no one but their own government to blame.
- He later wrote a book on the subject, No One Would Listen: A True Financial Thriller.
- Mother Jones, "Pinto Madness"
- Gary T. Schwartz. The Myth of the Ford Pinto Case. Rutgers Law Review, 1991. Page 1022.