#184 Competition is More Effective Than Regulations

"The Christian Economist" with logo and a closeup of a dollar bill in the background

Christians are called to take care of widows and orphans, because in the agrarian economy of Biblical times, those were the people who didn’t own land, so they were not capable of economically providing for themselves.  In the 21st century, we as individuals can care for the less fortunate by two very different economic systems: Competition or Regulation.

Regulations are regressive, harming the poor more than the rich.  They also exercise taxation without representation, and they side-step the democratic process.

University of Chicago economist Casey Mulligan has determined that the Biden administration’s rule-making has cost each American household more than $10,000, while the Trump administration’s reduction of rules saved each household $11,000.  Every American household has $21,000 less in purchasing power as a result of the change from President Trump to President Biden.  As President Obama noticed, “Elections have consequences.”  And they matter most to the poor, who suffer a greater loss in purchasing power through regulations than the rich do.  That’s because $21,000 represents a higher proportion of income to the poor, than the rich.

But wait, it gets worse: To quote Mr. Mulligan directly from his letter to the Wall Street Journal, “That would be more than $10,000 in cost for the two years of President Biden’s rule-making that I examined, and almost $11,000 in savings for four years of President Trump’s.  Mr. Biden is adding regulatory costs even faster than President Obama did, while Mr. Trump reduced them.”


Opportunity Cost

The simple economics question, “Is the juice worth the squeeze?” is what finance people term “Cost-Benefit analysis.”  We all make those decisions, large and small, on a daily basis.  You skimmed the headline of this podcast and decided the benefit you would receive from gaining the information is greater than the cost of spending the time to listen to it.  In economics, we call that “Opportunity Cost.”  You can’t listen to another podcast at this moment, because you’re listening to this one.

The federal government goes through a similar analysis, performed by the Office of Management and Budget.  They keep track of how many “significant regulatory actions” a President orders.  That has been defined as an order that costs American taxpayers $100 million.  That’s the squeeze.  Now, the Biden administration wants to double it to $200 million.  OMB also measures the “juice” that is produced from the order.  In the past, that benefit was accrued only to Americans, but being the global citizens they are, the Biden administration says those benefits can accrue from outside the US.

President Trump wanted to “Make America Great Again,” and the Biden Administration wants to “Make the World Great Again.”  The current Administration is tilting at a very large economic windmill.  Justice would say that money forcefully extracted from American taxpayers should benefit Americans.  If you really think money spent by taxpayers in one country should benefit those in another country, please preach that sermon in another country, and convince them to appropriate funds that benefit Americans.


No Taxation Without Representation

The phrase “No taxation without representation” first appeared in a London newspaper in 1768.  As you may remember, the phrase caught on in the colonies, and caused a revolution.  It raised the question as to whether the Crown had the right to tax its colonial subjects.  The colonists thought it did not.

But that’s exactly what’s happening today.  This is taxation without representation.  Our forefathers fought a revolution over that idea.  These are administrative orders that do not go through the democratic legislative process.  They harm the poor – as mentioned earlier – and the young.  Americans can’t vote until they are 18, but they have to pay for these regulatory costs in the form of decreased family spending power every year of their lives.

How many of those $100 million “economically significant” regulations are in the queue?  Clyde Wayne Crews from the Competitive Enterprise Institute says the current administration has ordered up 297 of the whoppers, and they are averaging 97 a year.  The averages for Presidents Obama and George W. Bush were much lower, at 69 and 49.

It’s all about power.  Socialism starts and ends with power.  The Biden administration has skipped over the democratic process of legislation because they see it as slow and cumbersome.  President Biden learned from his predecessor Barack Obama who proudly declared, “I have a pen and a phone.”  Who needs Congress?

President Trump has been labeled an egomaniacal narcissist.  But he used his power to reduce the cost of regulations for the poor, while President Biden is using his power to increase costs for the poor.  Who’s the egomaniacal narcissist?


The End of Democracy

This is a classic example of creeping governmental excess.  An agency (OMB) is created to watch other agencies.  Then the OMB is stripped of its power, so the other agencies can do what they want.  But, did we recover the $141 million we’re spending on the OMB?  Nope.  Still there.  As the Washington Post declares, “Democracy Dies in Darkness.”  The light that was previously shown by the OMB is being extinguished by the Biden administration.

In Federalist #51, James Madison wrote, “If men were angels, no government would be necessary.”  But they’re not angels.  So, in a world of self-interested, fallen people, how should we distribute goods?  The short answer is: Free market capitalism forces suppliers to compete to serve the demanders of the goods.  There is very little corruption in competitive markets.  That’s because corruption increases the price of the final goods, and self-interested demanders go to the lower-cost suppliers.

But the government steps in and tries to regulate the market.  The problem is, that those agencies are populated by fallen people.  So, you need an agency to regulate the regulators, that’s the OMB.  Then, the Biden administration comes along and neuters the top-level agency – the OMB – and the lower-level regulators are empowered.  Simple.  Done.  No more democracy.


Competition is More Effective Than Regulation

This fallen nature problem has to be solved in some way, and there are two answers: Competition or regulation.  I’ve often said, the government should do more…about what?  They should do more to maintain competition.  That’s why I’ve produced at least two podcasts on antitrust.  You see, antitrust activity by the government prevents the concentration of markets.  So that SHOULD be the government’s main job in the economy: Maintaining competition.  Because it’s very hard to run a corrupt company when it’s trying to compete.

This is the beauty of Adam Smith’s observation in The Wealth of Nations in 1776.  I’m going to get a “two-fer” where one great economist quotes another.  Milton Friedman said, “It is the responsibility of the rest of us to establish a framework of law such that an individual in pursuing his own interest is, to quote Adam Smith again, ‘Led by an invisible hand to promote an end which was no part of his intention.’”


We’re Fallen and We Can’t Get Up

Romans 3:23 reads, “All have sinned and fall short of the glory of God.”  Accent on the ALL of that scripture.  That means business people are fallen and governmental regulators are fallen.  So how do we produce and distribute goods and services in a scarce environment?

Regulation is an attempt to control the fallen nature, but you’re controlling it with fallen people.  It’s this old downward spiral: You form a bureaucratic agency to regulate the economy, but then you have to regulate the regulators, and then you have to regulate the regulators who regulate the regulators.

A simpler tack is to make suppliers compete.  When they compete, they are forced to serve the demander BEFORE they get served.  Wal-Mart bought the land, built the store, hired clerks, and stocked the place with about $7 million worth of goods.  That’s before they sell the FIRST item.  All I have to do is walk in, put something in my basket and run it across the scanner.  Wal-Mart served the poor first, then they got served.

That’s the reason a Christian Economist always wants to find a middle point between pure capitalism and pure socialism.  At either end of the spectrum, both of them produce monopolies, where the supplier is served before the demander.  A lightly regulated free market capitalist system produces the best outcome for all parties involved in the economic transaction.

Fear God
Tell the Truth
Earn a Profit