Our daily articles this month at MarottaOnMoney.com are focusing on the ideas of libertarian politics. Last week I listed the first three reasons why I lean libertarian. First, centralized power in government corrupts. Less government power means less government corruption by special interests. Second, controlling another person’s life through force is inherently wrong. Third, government-supplied security is an illusion. By its nature, government cannot function in that role.
Here are four more reasons I lean libertarian:
4. Government monopolies kill innovation and efficiency. We are often fooled into thinking that only the government can supply certain things for us. For example, many Americans falsely believe the government is their only protection from major health complications. But if the Food and Drug Administration (FDA) did not exist, all the motivations would be in place for private enterprise to willingly step in and fill the need.
Therefore, the debate is not between certification of meat-processing standards and no certification at all. It is rather between government-run agencies that respond to the demands of special-interest groups and private-run groups obligated to respond to the demands of consumers.
Here is an example of a sector in which the government monopoly has been removed. When you want to ensure a letter or package is delivered, who do you trust to make sure it gets there: FedEx, UPS or the U.S. Postal Service? Before partial privatization, abolishing the Postal Service seemed crazy. Now it appears much more reasonable. Private enterprise can respond and offer whatever levels of quality assurance the market seeks with greater cost effectiveness.
Libertarians believe we should privatize education, retirement and most of the current functions of government simply because they are too important not to remain in our private control.
5. Many government-run agencies are inefficient, wasteful monopolies. Examples of such agencies are sadly plentiful. For example, the subsidized services for the poor may seem helpful, but these subsidies target specific services that the government assumes the poor want. However, like a well-intending distant relative buying a gift you do not need or want wastes his money, the government’s handout is accepted because it is free, not because it is the best use of money for the recipient. If given money instead of subsidies, the poor might not choose to spend as much on heating efficiency, school cafeteria food or graduate education. Even a small subsidy heavily skews a lower income budget. As noble as these intentions might be, it is easy to imagine families who would rightly choose to spend the money more effectively. These programs are in place because of the energy, farm and education lobbies.
The same is true for direct corporate subsidies. Oil companies are given tax breaks for ethanol. Millions are poured into failing solar companies. Farms are paid for limiting, not increasing production. And Big Education could not survive without the plethora of student subsidies.
As a result, these government-run agencies waste taxpayer money on projects of their choosing. They waste because, on the one hand, if taxpayers chose to support these projects financially, they would. Government involvement would be unnecessary. On the other, if taxpayers would not financially support these projects, then the government’s efforts are unwanted. In either case, this government spending is thus unnecessary or unwanted. Unless you believe those receiving assistance are incapable of acting well, money directly in the hands of lower income families would be better spent. I believe the cases where being poor means you are incapable of handling your affairs well are relatively few.
6. The costs of regulatory compliance are often greater than direct taxation. For small businesses the fixed costs of compliance are the greatest. Working with small businesses, I’ve seen the frustration of trying to determine the required rules, forms and procedures that take hundreds of hours of the owner’s time. One state required every out-of-state vendor to file to collect their sales tax even if their products were exempt from sales tax. A single state clinic wanted to buy their software. After dozens of hours filling out that paperwork, the owner was in violation every quarter for failing to file a form with all zeros on it. The single sale was not worth the regulatory burden.
Federal agencies are even worse. Getting a drug through the FDA approval process costs about $1 billion. The FDA has a great incentive to deny or delay a drug’s approval on the off chance that something goes wrong. As a result, only 21 drugs were approved in 2010. This number has been dropping from a high of 45 drugs in 1996.
Although the FDA costs the taxpayers $3.2 billion directly, it costs at least $21 billion in regulatory costs for those companies approved by the FDA. And for the graveyard of never approved but potentially useful drugs, the societal costs are even higher.
7. Regulatory compliance only means your paperwork in is order. In the financial world, Bernie Madoff had all of his regulatory paperwork in order. No one bothered to check if his paperwork matched reality. We pass feel-good legislation aimed at making people feel safer without actually assuring their safety. As with all legislation, lawyers put laws on paper without actually making the world a better place.
First they make it illegal to run a Ponzi scheme. Then they require firms to disclose if they are running a Ponzi in their annual filing. Then they make it illegal to lie on their annual disclosure. Next they require a designated chief compliance officer in the firm who will check that the firm’s paperwork is in order. And finally they make it an offense for the chief compliance officer to fail to review the firm’s compliance annually.
None of this impedes the few real crooks who are willing to boldly certify their own lies.
Compliance paperwork will not make cantaloupes safe. Nor will it make mines, deep sea drilling, or hedge funds safe. You will start to lean more libertarian if you remember this mantra: Regulatory compliance only means paperwork.
Reevaluating our presuppositions is never easy, especially not in politics where assumptions are worn like a second skin. I am not suggesting that Ron Paul is the best candidate for president, but he should not be dismissed out of hand simply because he suspects the FDA does as much harm as good. On that point (and many others I have heard him make), I think he is right.
Photo by Megan Marotta