Monday, October 21, 2013

Economics for Occupiers Part 10: Regulation in a Free Market

The issue of regulations and their place in society and the market is a contentious one.  On one end of the spectrum is a moribund bureaucracy whose sole product is an impenetrable maze of regulations stifles economic activity by making it nearly impossible to do anything without violating some regulation. In this environment regulations are created to shape social policy or promote certain interests or groups for reasons that can often seem capricious or misguided.  While no one will overtly endorse such a regulatory environment, this is the de facto result of the average liberal mindset, which assumes that people need government to protect them from themselves.

At the other end of the spectrum is a completely laissez faire regulatory environment, where no regulations encumber the market, and a wild west, let-the-buyer-beware attitude dominates.  This is the extreme that many free market capitalists endorse.  In this mindset, the government has no role in the market, and any regulation is seen as intrusive and antithetical to the purity of laissez faire free market capitalism. Such purists become outraged to the point of incoherence at any suggestion that some activities should be regulated.

Neither one of these extremes is rational or realistic.  We should remember the basic credo of free market Capitalism: individuals should be free to engage in commerce at mutually agreed upon rates of exchange, without coercion or misrepresentation.  We need to look at the implications of two parts of this definition.  Mutually agreed upon rates and misrepresentation.  The assumption of a perfectly functioning free market is that all parties have perfect knowledge of what is being exchanged, as well as how the rest of the market valuates the items being exchanged.

Read more about this in chapter 13 of Economic for Occupiers, now available on

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