Monday, 20 October 2014

Sound Money Blog

Should Lawmaking Be Against the Law?

February 29, 2012

The short answer is “yes,” with a “but”; the long answer is “no,” with an “if.”

For a market to work and grow, certain rules should prevail and be protected, like private property, enforcement of contracts, civil and economic liberties, etc. But the lawmaking process can be a tricky and dangerous path.  What seems to be prima facie a good outcome by a new law can easily produce a net loss through unintended and unforeseen consequences. As The Economist illustrates in a recent note, some of these problems are evident:

A Florida law requires vending-machine labels to urge the public to file a report if the label is not there. The Federal Railroad Administration insists that all trains must be painted with an “F” at the front, so you can tell which end is which. Bureaucratic busybodies in Bethesda, Maryland, have shut down children’s lemonade stands because the enterprising young moppets did not have trading licenses. The list goes hilariously on.

Certainly, as the note continues, the problem rests within all those rules that seem to be coherent but in fact are as ridiculous as the ones mentioned above. A standard textbook example are price ceilings and price floors (maximum and minimum price controls. –ed.). A minimum wage does not result in an “increase in wages,” but in an “increase in wages for some at the expense of others.” But the fact that regulations such as those above not only made it through their respective parliaments, but that they continue to exist, can produce the feeling that lawmakers pay no attention to what they do, or that they are too lazy or too proud to correct their mistakes. It is hard to imagine a lobbing story for banning children’s lemonade’s stands , and what’s the point of a label urging the public to file a report if the label in question is not in place?

There is a lot of difference between improving the existing regulation and just an increase of regulations. A conscientious lawmaker who wants to improve the standard of living of his constituents will be concerned with facilitating the functioning of the market, not in increasing the number of regulations. A close study of law and regulation will show, in most cases, that the result of the law is the opposite of the one intended in the first place. Better regulation does not mean more, but less, law. Just as Richard Epstein’s book title suggest, we only need “simple rules for a complex world.”

Nicolas Cachanosky is a doctoral student in economics at Suffolk University, as well as a previous Sound Money Essay Contest winner.

image: www.flickr.com/thisisbossi