Open Letter to a Correspondent

by Don Boudreaux on October 11, 2015

in Myths and Fallacies, Regulation

Mr. Milt H______

Dear Mr. H______:

Thanks again for writing to me, prompted as you were by this quotation of mine that appears in the current weekly e-mail distributed by AEI: “The absence of regulation by government does not remotely mean the absence of effective regulation.  Consumers’ and suppliers’ (including workers’) ability to say ‘no’ to industry is an important and effective form of regulation.”

You understandably ask how I square this claim with the recent revelation that Volkswagen misled many of its customers about the emissions-control quality of its automobiles.  My answer is that perfection is an inappropriate standard by which to judge any human institution.

The argument for relying upon regulation by market competition (backed, of course, by the law of property, contract, and tort) rather than upon regulation by government is not that there will never, in the absence of government regulation, be instances of fraud or of the failure of products and work conditions to live up to consumers’ and workers’ reasonable expectations.  Instead, the argument is that relying upon market competition will in general and over the long run result in less consumer and worker harm (as judged, not by government officials, but by consumers and workers themselves) – and more consumer and worker satisfaction (also as judged by consumers and workers themselves) – than will result if government obstructs with commands and controls the ability of market participants to bargain with each other.

In short, the argument is not that eliminating government regulation will make market outcomes perfect; it’s only that eliminating government regulation will make market outcomes better.

Switching gears, let me ask you a question.  How do you square your support for government regulation with the recent revelation of VW’s deception?  After all, government regulations meant to prevent such deception have long been in place, yet such deception nevertheless occurred.  So does this failure of government regulation prove that government regulation is unjustified or ineffective?  That it should be abandoned?  That its proponents are naïve and unrealistic?

Even I – who oppose government regulation – emphatically do not believe that the failure of government regulators to immediately detect and prevent this fraud amounts to a case against government regulation.  The case for or against such regulation must be based upon a realistic assessment of how it, compared with market regulation, is likely to perform over time and in many different circumstances.

Again, my argument is that market regulation generally works better than does government regulation; it’s not that market regulation is flawless.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

P.S. The original blog post from which the above quotation is pulled is here.


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