Laissez-Faire?
NY Times: "The United States has a culture that celebrates laissez-faire capitalism as the economic ideal."
Walter Williams: You can decide whether we have an unregulated laissez-faire economy.
1. There are 15 cabinet departments, nine of which control various aspects of the U.S. economy. They are the Departments of: Transportation, Housing and Urban Development, Health and Human Services, Education, Energy, Labor, Agriculture, Commerce, and Interior.
2. In addition, there is the alphabet soup cluster of federal agencies such as: the IRS, the FRB and FDIC, the EPA, FDA, SEC, CFTC, NLRB, FTC, FCC, FERC, FEMA, FAA, CAA, INS, OHSA, CPSC, NHTSA, EEOC, BATF, DEA, NIH, and NASA.
Here's my question to you: Can one be sane and at the same time hold that ours is an unregulated laissez-faire economy? Better yet, tell me what a businessman, or for that matter you, can do that does not involve some kind of government regulation.
A businessman must seek government approval for the minutest detail of his operation or face the wrath of some government agency, whether it's at the federal, state or local level. Just about everything we buy or use has some kind of government dictate involved whether it's package labeling, how many gallons of water to flush toilets or what pharmaceuticals can be prescribed.
Update: The link to Walter Williams' column has been added above and here.
38 Comments:
Exactly!
As a business owner, I must employ CPAs and lawyers to constantly ensure that I am complying with a maze of regulations.
If we were any less "laissez-faire" we would be a command economy.
We are the least regulated economy on earth. That is why we are laissez-faire.
Let me clarify that, we are the least regulated developed economy on earth.
Neither Hong Kong nor Singapore are emerging markets and their markets are much more free.
"laissez-faire" has a specific meaning and it's not indirect ownership of the means of production via regulation.
We are the least regulated economy on earth. That is why we are laissez-faire.
Didn't Canada just pass us on an index of economic freedom?
Our corrupt government will collapse within the next 4-8 years shortly after defaulting on it's debt. This will be followed by a dictatorship. Let history be your guide.
I believe Laissez-Faire means leave me alone. Or don't interfere. Certainly, the government interferes everywhere in our lives.
key word in the NYT article, "celebrate".
here's an example of what happens when laissez-faire is taken to the extreme:
financial geniuses, freed of any regulations, writing trillions of dollars of credit default swaps. so, how did that work out?
Who needs those pesky
1)INS agents stopping the mexicans from crossing our border, we need all the cheap labor from mexico.
2)DEA agents stopping the mexicans drugs from crossing our border, we need all the cheap drugs from mexico.
3)IRS agents collectiong taxes from the cheap mexican labor which will make our country great.
4)OHSA agents from protecting the cheap mexican labor.
Apparently the Mexicans.
"Our corrupt government will collapse within the next 4-8 years shortly after defaulting on it's debt. This will be followed by a dictatorship. Let history be your guide."
Hey,Chicken Little....will this be before or after the sky falls?
bobble claimed:
here's an example of what happens when laissez-faire is taken to the extreme:
financial geniuses, freed of any regulations, writing trillions of dollars of credit default swaps. so, how did that work out?
Bobble, what on earth makes you think we have anything remotely resembling a laissez-faire economy?
In addition to the massive amounts of federal regulation pointed out in the original post, laissez-faire capitalism (LFC) does not feature fiat money controlled by a central bank that has unlimited power to expand the supply of that money -- thereby forcing interest rates way below their natural level and encouraging the making of ever-riskier loans.
LFC does not feature a federal government that has the power to bail-out companies that make stupid financial decisions and a track record of doing precisely that -- thereby, again, encouraging business people to take risks they would otherwise eschew.
LFC does not feature a federally-controlled cartel of bond rating agencies that rated these bundles carrying subprime loans as "AAA".
LFC does not feature government-sponsored entities like Freddie and Fannie and the FHA, all with the mission to "make housing more affordable" by encouraging loans to people that otherwise would not qualify.
As far as “how did that work out?” is concerned, if irrational behavior does occur under LFC, those who are irrational are punished for it by the market, while those who remained rational are protected.
In short, blaming any part of the current economic mess on laissez-fair capitalism is like blaming in on a Martian invasion -- you are blaming it on something that does not exist.
machiavelli, "Least regulated" does not equal "laissez-faire."
Here is more on the myth that we are laissez-faire:
According to the Competitive Enterprise Institute:
http://cei.org/articles/%E2%80%98hidden-tax%E2%80%99-rules-hits-economy
Some 50+ federal agencies, departments and commissions are presently at work finalizing 3,882 new regulations; 757 will apply to small businesses as well as large. More than 51,000 regulations were put into effect from 1995 - 2007. Some 48,000 were done between 1995 - 2006, when the Republicans controlled Congress. So much for the notion that Republicans “deregulated” the economy.
You can see these regulations for yourself. They are printed up in the Code of Federal Regulations (the CFR). Go here:
http://extent-of-regulation.dhwritings.com/
to see pictures of the CFR at the library of Congress.
The 50 volumes of the CFR occupy over 25 feet of shelf space.
Here is a listing of the specific titles of the CFR:
1. General Provisions • 2. Grants and Agreements • 3. The President • 4. Accounts • 5. Administrative Personnel • 6. Domestic Security • 7. Agriculture • 8. Aliens and Nationality • 9. Animals and Animal Products • 10. Energy • 11. Federal Elections • 12. Banks and Banking • 13. Business Credit and Assistance • 14. Aeronautics and Space • 15. Commerce and Foreign Trade • 16. Commercial Practices • 17. Commodity and Securities Exchanges • 18. Conservation of Power and Water Resources • 19. Customs Duties • 20. Employees' Benefits • 21. Food and Drugs • 22. Foreign Relations • 23. Highways • 24. Housing and Urban Development • 25. Indians • 26. Internal Revenue • 27. Alcohol, Tobacco Products and Firearms • 28. Judicial Administration • 29. Labor • 30. Mineral Resources • 31. Money and Finance: Treasury • 32. National Defense • 33. Navigation and Navigable Waters • 34. Education • 35. Panama Canal • 36. Parks, Forests, and Public Property • 37. Patents, Trademarks, and Copyrights • 38. Pensions, Bonuses, and Veterans' Relief • 39. Postal Service • 40. Protection of Environment • 41. Public Contracts and Property Management • 42. Public Health • 43. Public Lands: Interior • 44. Emergency Management and Assistance • 45. Public Welfare • 46. Shipping • 47. Telecommunication • 48. Federal Acquisition Regulations System • 49. Transportation • 50. Wildlife and Fisheries.
The regulations in these volumes are typed in small font, double-column on each side of each page.
On ABC, on 10/17/08, John Stossel demonstrated that the pages in a single volume, when removed and laid end to end, stretched out the length of a football field and halfway back again. Go here to see a video of him doing this:
http://abcnews.go.com/Politics/Vote2008/story?id=6049954
Laissez-faire? Absolutely not.
For a fantastic article on the myth that we have a laissez-faire economic system, go here:
http://www.georgereisman.com/blog/
financial geniuses, freed of any regulations, writing trillions of dollars of credit default swaps. so, how did that work out?
Actually, fine. The CDS market didn't turn out to be that much of a risk after all.
The uber regulated mortgage market on the other hand....ooops.
You probably don't know what a CDS is do you? I love it when people talk out of orifices that should be used for excreting waste.
Any idea how much all the regulation we have adds to the price of everything we buy? Seems I remember 5% or so from an economics class many years ago. Probably higher today! JCarr
jrich,
According to your definition of capitalism and laissez-faire, America has never been a capitalist nation and has always been socialist.
Anonymous said...
Any idea how much all the regulation we have adds to the price of everything we buy? Seems I remember 5% or so from an economics class many years ago. Probably higher today! JCarr
Now that's economic illiteracy. The only thing that adds to the price that you buy is inflation, which is caused by an expanding monetary supply. Regulation might restrict growth and might make certain things more expensive, but it doesn't cause prices to go up across the board.
I never said we had a pure capitalism at work in this (or any other) country...but if you look at it as a continuum, you can't define one end by the other except in terms of opposites (heavy regulation and laissez-faire). You equate the two (level of regulation=laissez-faire).
If I list 20 cities by crime rate, and of those twenty we live in number 20, are we crime free?
If I display a spectrum of 10 different shades of gray from darkest to lightest, is the lightest one to be considered "white" because it's closest to that end of the spectrum?
We may be the least regulated developed economy on earth, but that is not "why we are laissez-faire."
maciavelli999 says:
"The only thing that adds to the price that you buy is inflation, which is caused by an expanding monetary supply."
So if the government imposes a 10% VAT tax on every good sold in America, will that not cause the prices of all goods to rise? Are you calling such a price increase "inflation", and claiming it's the result of an expanding money supply?
According to your definition of capitalism and laissez-faire, America has never been a capitalist nation and has always been socialist.
At what point in American history are you choosing to start your analysis? You know, America was around before FDR.
Now that's economic illiteracy. The only thing that adds to the price that you buy is inflation, which is caused by an expanding monetary supply.
No, your statement displays an incredible amount of economic ignorance. Compliance with regulation requires entire departments of expensive legal and tax experts. It slows down operations and distracts managers from their core duties. All of those additional costs are passed on to the consumer. That part is seen. Regulation also serves as a barrier to entry, reducing competition and innovation and increasing the price to the consumer. That part is "unseen".
anon217:"The CDS market didn't turn out to be that much of a risk after all."
LOL, tell that to AIG shareholders
oh, and if you're basing your risk assessment on the successful clearance of Lehman CDS by DTCC, here's some info you might be interested in.
"Our corrupt government will collapse within the next 4-8 years shortly after defaulting on it's debt. This will be followed by a dictatorship."
And why is it that it hasn't before?
You know, America was around before FDR.
Yes, that is true. Market based policies were supreme in the 1920s. The fruition of those policies were the 1930s.
"Any idea how much all the regulation we have adds to the price of everything we buy? Seems I remember 5% or so from an economics class many years ago"...
Must've been many, many decades ago, before the first commie was elected...
Complying with government regulations consumes $1.4 Trillion
($1,028 billion federal mandates, $343 billion state & local government mandates)
- 14.9% of the economy - $4,680 per man, woman and child -
- adding this regulation cost to $13,568 government spending per person
equates to $18,248 per person of government impact -
AND - compliance costs small business more per employee than big business -
AND - this does not count compliance cost impacts of the Patriot Act and Sarbanes-Oxley regulations
- federal expenditures on regulatory activity increased 2.7 times faster than economic growth since 1960 -
- at 14% per year compounded -
Sorry Arman, that old canard about the Depression being the fault of free market economics doesn't wash.
To start with, it was the government's Federal Reserve that rapidly expanded the money supply, giving everyone a false sense of prosperity, encouraging overly exuberant investing.
Then the Smoot Hawley Act, which imposed huge tariffs on most imports (and caused retaliatory tariffs to be imposed by other countries), effectively brought a halt to international trade. That was anything BUT free market economics.
Furthermore, in the 19th century, when we had dramatic drops in our economy, they corrected themselves on their own within 12-15 months with no government intervention. In contrast, the Great Depression went on and on and on.
The difference? The New Deal.
Indeed, every time we started to recover in the 30's, another set of New Deal high taxes and regulatory measures were imposed, sending us right back down again.
richard rider says: "Sorry Arman, that old canard about the Depression being the fault of free market economics doesn't wash"...
Absolutely!
From Cato's Jim Powell: How FDR's New Deal Harmed Millions of Poor People
New Deal programs were financed by tripling federal taxes from $1.6 billion in 1933 to $5.3 billion in 1940. Excise taxes, personal income taxes, inheritance taxes, corporate income taxes, holding company taxes and so-called "excess profits" taxes all went up.
The most important source of New Deal revenue were excise taxes levied on alcoholic beverages, cigarettes, matches, candy, chewing gum, margarine, fruit juice, soft drinks, cars, tires (including tires on wheelchairs), telephone calls, movie tickets, playing cards, electricity, radios -- these and many other everyday things were subject to New Deal excise taxes, which meant that the New Deal was substantially financed by the middle class and poor people. Yes, to hear FDR's "Fireside Chats," one had to pay FDR excise taxes for a radio and electricity! A Treasury Department report acknowledged that excise taxes "often fell disproportionately on the less affluent."
To add to the critiques of Arnan's comments: Rider's comment on the speed of market correction is spot on, in fact the "Depression" began as a mere recession, and the amount of government manipulation went even deeper including:
the so called "banking holiday", which was supposedly done to protect a run on the banks....for one day! and what would anyone would assume would happen the following day....a run on the banks.
How about Hoover convincing larger employers to keep payrolls high despite dropping prices and margins. Supposedly this would maintain demand, yet all it did was convince the employers that the idea was stupid and even more folks were laid off.
The fact that in 1939 we still had 17% unemployment despite all of the unprecedented government intrusions, including regulations, taxes and spending.
Hayek pointed out the bubble as an illusion and predicted the crash. Of course when they came to him afterward looking for advice and he pointed out to them that the market would correct itself, no one listened, and the result of this, and NOT the market, was the horrible experience we call the Great Depression.
Sorry if I didn't give you anything the laugh about.
The fruition of those policies were the 1930s.
And the fruition of FDR's policies are:
1,) The prolonging of the depression
2.) the 1970's
3.) Now
Hmmmm....you're right. FDR's policies are clearly superior. At creating crisis and stagnation.
A Treasury Department report acknowledged that excise taxes "often fell disproportionately on the less affluent."
All taxes fall on the less affluent. Consumption taxes because the less affluent consume more of their income and income taxes on the more affluent because it discourages the more affluent from working to pay the taxes and investing to create jobs for the less affluent. There's only one way to play Robin Hood - hurt the rich a little and hurt the poor a lot.
If government were all that was needed to create jobs, the Soviet Union would have worked.
"And the fruition of FDR's policies are:1,) The prolonging of the depression"
That is as an intelligent a comment as holocaust denial.
FDR inherited the worst economy known to civilization. Within his first two terms it was the greatest economy known to civilization. That is undeniable fact, and you spout unsubstantiated (though often repeated) far fetched opinion.col
Within his first two terms it was the greatest economy known to civilization.
17% unemployment spell "greatest economy known to civilization" to you, eh? A war economy driven by enormous demand for war goods is all FDR's doing. Maybe if we blame FDR for WWII, we can then give him credit for an uptick in the U.S. economy. The fact (something I notice is completely irrelevant to a True Believer such as yourself) is that the economy didn't recover from the depression until WELL after FDR died and economic policies were liberalized.
That figure is fabricated, even though it is better than what FDR inherited. Check the GDP growth. Check the fact that the US could AFFORD the war. It would not have been able to in 32... there just weren’t enough tax payers. Your attitude on FDR is concocted, predicated on the firm faith that Adam Smith and Keynes understood economics, and you believe any information that counters such notion is wholly invalid. It was no mistake that FDR continued to serve long after his first two terms... there was just no other person who was anywhere near as competent, and forcing HIM to step down would have been a disservice to the nation.
Arman,
The number quoted is a historical, statistical fact. I'm sure where you come up with the idea that it was concocted.
While many liberal historians are goo-goo over Roosevelt, it is very difficult to argue your stance. The economy improved some during his reign, but as already pointed out earlier, and never refuted, the economy had recovered from steep recessions, and always did it very quickly. There is absolutely no reason to believe that the GD was any different. What started out as a simple recession (beginning in August of '29 actually), turned into a depression due to the ignorant actions (not inaction) of Hoover and was kept from correcting itself by Roosevelt.
Actually it should have read "I'm not sure". Sorry
Trends are insidious and do not change "just because" as is touted in conventional "wisdom" of "business cycle" notions. Unemployment causes depleted consumer spending causing unemployment. You cannot have a sudden turn in the GDP without a corresponding turn in the unemployment picture.
The boom of the 1920s was greater than had ever before been seen. Part of this was due to the right wing policies of the late 20s, but a lot of it was a hangover of the left wing policies of the early 20s. Right wing policies are unsustainable, because the base of the economy is the consumer, and not the business. Lower labor costs will always be manifest in lower consumer spending. Hence, when the crash came, it was not like before where the economy was sitting on the floor and just rolled over. It was on heights never before reached and had a long way to fall before finding a floor. It was nowhere near done falling, and this was not really a problem with Hoover. Once the trend is set, it will continue unless the correct measure is put in place to turn the situation around. The economist's refusal to properly analyze a general turn to a trend is criminal neglect. The notion of a business cycle that is just because is begging the questions that economists are duty bound to ask. The trend TURNED very shortly after FDR took office, and except for the major "bump" of 37, has never looked back.
Michael Smith already pointed readers to the article by Dr. George Reisman, http://www.georgereisman.com/blog/,but I'd like to point out that the bulk of Carpe Diem's quote of Dr. Williams is actually Dr. Williams quoting Dr. Reisman!!
Both articles are well worth reading.
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