A Pro-Regulation Post(!)

John Maynard Keynes famously parried a question about the possibly adverse long term effects of some policies he was recommending by remarking, “In the long run, we’re all dead.” Decades later, in reference to Keynes’s comment, William F. Buckley, Jr. quipped “Well, now he’s dead, we’re not, and we’re living with the consequences of his mistakes.”

Buckley’s retort highlights what should be, but all too often isn’t, an ongoing constraint on decisions by governments and businesses: a consideration of the possible consequences of their choices out beyond the personal horizons of the individuals who are directly involved. The disagreements over time between Keynes’s prescriptions and Buckley’s conclusions concerned monetary and fiscal policy – but it can equally be said that many, perhaps most, businesspeople tend to ignore the longer term risks or costs that might arise to others from their decisions. Arguably, the environmental movement is built on such heedlessness by both businesses and governments.  

In these posts I have regularly ranted about our politicians’ foolishness about the likely long term effects of many policies presently supported by both of our major political parties. As Civil Horizon’s readers know, I generally favor more individual freedom and a less intrusive government than most Americans now prefer; I have a broadly libertarian orientation.  Given my smaller-government preferences, the topic about which I am now ruminating may surprise you: the moral – and ultimately legal – limitations that sometimes need to be placed on our economic freedoms.    

To begin, real capitalism – as opposed to the regulatory capture/crony kind too often practiced by businesses big enough to do so – is the economic embodiment of personal freedom. I know from personal experience and deep in my bones that unfettered exchanges of goods and labor are not zero-sum affairs; if you and I agree to buy or sell among ourselves, we do so because each of us believes we’ll be better off afterward.

I know, too, that the job of the businessperson is to relentlessly seek to improve his or her products in the eyes of the market, and that through such improvements the world moves forward. Indeed, I am convinced that it was precisely America’s personal and economic freedoms, combined with the rule of law, that fueled this nation’s growth and ultimately made it the richest society the world has ever seen. So far, so good as regards capitalism’s enormous benefits to the American people.

 As already noted, though, problems can arise – have arisen and do arise – if and when the economic freedoms implicit in a market system are taken as a license for people to do anything that immediately benefits the individuals buying and selling. This is the justification for virtually all regulation of economic affairs – that there’s a larger interest at stake than the respective individuals’ immediate needs. It’s a justification that’s much-abused.

In some situations, though, such regulation is fully appropriate, indeed absolutely necessary, in view of the broader context. Some environmental regulation, for example, makes polluters pay for their costs that would otherwise be borne by society as a whole. To give a simplistic example: if manufacturer A makes a product for a dollar, while emitting no harmful pollutants, while manufacturer B makes a very similar product for 80 cents while emitting pollution that it will cost society 40 cents to clean up (that pollution being described as “externalities” in economist-speak because if unregulated, their costs will burden neither buyer nor seller, but rather, everybody else), plainly regulations that make the polluting manufacturer pay the full cost of his process – in this case $1.20, which would bankrupt him or her unless the polluting process is changed – is fully appropriate.

Coming back to the Keynes/Buckley disagreement about time horizons, some instances in which either, or preferably both, moral constraints on business and regulation should come into play involve the anticipation of ill effects of possible (and presumptively profitable) business transactions that are likely to take place on a longer term basis than businesspeople are naturally inclined to consider.

An example of this sort of situation with which few would now be inclined to disagree would be if, in the mid-1930s an American businessperson had had an opportunity to sell steel (or, worse, radar technology, which was just about to be invented) to the Germans, he or she shouldn’t have done it on principle, and he or she should have been prevented from doing it in any case by operation of law.

I’ve been thinking about that 1930s/German parallel ever since I wrote Follow the Money…. I wonder at the fact that so many leading American corporations are chasing the China trade in spite of the Chinese government’s manifold misdeeds against its own people, and the longer term threats to peace implicit in its spying, technology thefts and growing military/territorial aggressiveness. American businesses are too enthralled with the prospective efficiencies – and profits! – of the China trade to worry over what they presumably see as, at most, issues for the government to worry about.

I support the Trump Administration’s much more assertive stance vis-à-vis trade with China. Indeed, I wonder if Trump has gone far enough. Like millions of other Americans, I have concluded that the CCP is not evolving toward becoming a responsible actor on the world stage, it is taking advantage of our natural weaknesses in a manner designed to ensure that in the long run, their system prevails over ours. We should stop all sensitive technology transfers and reconsider all aspects of our trading relationship.

There would be a very real cost to doing so. Business with China is very profitable for both sides – it’s a lot more profitable for our companies to manufacture with lower-cost labor, fewer regulatory constraints and lower taxes than they would face in the western world. Importing less from China would mean higher costs for American consumers. It would also mean more (and higher-cost) jobs here. 

The big business executive class will not like such a decoupling one bit. They will argue that if they can’t take advantage of the economic efficiencies of the China trade, somebody else will. And in that, they’re doubtless correct. Even so, more restrictive, case-by-case decisions should be made by our government as to what kinds of goods American business people will be allowed to trade with China.

If our allies want to provide what we will not, we’ll have to decide if they’re really our allies in any sense beyond their willingness for us to pay for their defenses.

The broader point which, again, runs counter to my usually-reliably-libertarian instincts, is that there are some rules that only government can impose – and that if government doesn’t impose them, it will be to all of our detriments, either immediately, as with pollution or in the long term, as with serious foreign policy threats. Business people cannot be relied upon to consider such matters.

M.H. Johnston             

2 comments to A Pro-Regulation Post(!)

  • Anonymous  says:

    Mark,

    I am in agreement with you that it is long past due to take a tough stance on trade with China. China is an authoritarian regime with a leader who will remain in power for life. Their communist party goal is global domination achieved in part by lack of human rights.

    This is a time that formally the United States would unite it’s allies and collectively pass sanctions and trade regulations to diminish this problem. Unfortunately we no longer have allies especially in the G7 or NATO. Our president’s “America First “ rhetoric and antagonist stance towards our former partners has diminished our standing as leader of the free world. “America Alone” is much less able to combat regimes like China.

  • DP  says:

    I’ll try again.

    Mostly agree, but wanted to say 2 things: firstly, we can’t fault the Chinese for being patriots or putting their interests first. I’m a patriot and don’t begrudge other countries the same privilege. But we don’t need to roll over. Given that many revolutionary societal changes cause civil war and economic hardship (see Russia), I think the CCP can be proud of many things in the last 30 years. But it’s become the ancien regime and the Xinjiang repression is like a metastasis. I just think we need to acknowledge how much worse it could have been. Second point: I’m not sure that the final chapter has been written on freedom there. We were naive to assume that the government would embrace it, but the people largely enjoy economic freedom and have a taste for making their own choices.

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