Liberty and Regulation

DownloadedFileIt’s easy to see why John Kenneth Galbraith’s The Great Crash has a high place in the pantheon of mainstream economics books.  His narrative moves crisply, and he does not get bogged down in the details.  The economic information he shares must not be too difficult, for I have very little knowledge of economics and only failed to understand some of the book.

However, while the narrative moves along well, Galbraith sacrifices much to achieve this.  He admits that the reasons for the Crash and the resulting depression are legion and difficult to know precisely, but he backs off any kind of in-depth treatment.  At times he throws out lines about the need for regulation that I assume he agrees with, but he never develops this idea or the rationale for government regulation.  I finished the book feeling like he had no interest in resolving or even tackling the main question his book raises.

The main question, I think, is this:

  • Is liberty an absolute concept and therefore an absolute good?  If so, any restrictions placed upon it done (if done at all) would be done only for emergencies, and then only temporarily.
  • Or, is liberty in the end a relative concept, one that has meaning only within a given context.  If so, societies should feel free to tinker with it, restricting it here and there, to achieve optimal balance.  For example, inoculations make us healthier by giving us a small dose of disease.

Perhaps Galbraith avoids the question out of modesty, or out of fear of ruffling feathers.  In his book The Servile DownloadedFile-1State, Hillaire Belloc (who loved ruffling feathers and had no modesty) jumps right in.  Liberty, he argues, like our appetites, must be kept in check if we are to have freedom in the end.  Just as alcoholics lose their right to drink, so too abusers of liberty will be left with none of it.  Like any admirer of medieval times, Belloc argues for a careful, measured approach, one that in the end values stability over wide-ranging opportunity.

He traces the development of capitalism not from the Industrial Revolution but from Henry VIII dissolution of the monasteries, allying his government with the wealthy class by distributing the land among them.  What looked to be a bold move to secure his own power, Henry in fact only made his power subservient to the elite.  This is not freedom for the state or freedom for the individual.  

But he goes a bit further.  Since full-boar capitalism produces instability in the end, the people will reject it, and swing the other way to a “servile-economy.”  In this new economy they will have guarantees but much less freedom than before.  They will in fact, be made to work as the government becomes more and more allied with businesses — a form of slavery.  Belloc did not foresee the welfare-state, where it could become actually cheaper for some not to work at all, but this too would be a form of slavery for Belloc.

I believe that a free people should attempt to use government to help achieved legitimate societal ends, and in that way I have at least some sympathy with Galbraith and Belloc.  The problem is, what should we regulate and how much? The article below from Matt Yglesias (thanks to a link from Marginal Revolution) exposes some of the problems when talking about regulation.  Do we have the kind of society, and the kind of political environment we need, to successfully and appropriately regulate ourselves?  We shall see.

I did a piece about how annoying the paperwork for getting even the simplest small-business license is, which prompted a lot of weird reactions from conservative readers, like “Obama lapdog Matt Yglesias has epiphany: Gee, it’s hard to start a small business in D.C.!” and various comments about how I’m reaping what I sow, and now I should understand why lots of people vote Republican.

This is something I think I actually understand very well. I voted for Republican Patrick Mara the last time he was on the ballot for a D.C. Council at-large seat, and I’ll probably vote for him again. I voted for Mitt Romney for governor in 2002. I would have voted for Michael Bloomberg in the 2005 or 2009 New York City mayoral races, and in general I think the conservative critique of municipal government in the United States has a lot of merit. Republicans might be interested in why someone like me—someone who sympathizes with many of their economic policy views—still hesitates to vote for their candidates for national office. One reason is that I tend to think conservatives place much too little emphasis on the rights and interests of religious and ethnic minority groups, gay people, and the like. Another reason is that conservatives have much too much affection for state-sponsored violence. In terms of economic policy, Republicans tend to deride the hugely successful practice of taking money from the rich and giving it to the poor. But even on the regulatory front, there are real shortcomings to the Republican approach.


The way I would put this is that the American economy is simultaneously overregulated and underregulated. It is much too difficult to get business and occupational licenses; there are excessive restrictions on the wholesaling and retailing of alcoholic beverages; exclusionary zoning codes cripple the economy; and I’m sure there are more problems than I’m even aware of.


At the same time, it continues to be the case that even if you ignore climate change, there are huge problematic environmental externalities involved in the energy production and industrial sectors of the economy. And you shouldn’t ignore climate change! We are much too lax about what firms are allowed to dump into the air. On the financial side, too, it’s become clear that there are really big problems with bank supervision. The existence of bad rent-seeking rules around who’s allowed to cut hair is not a good justification for the absence of rules around banks’ ability to issue no-doc liar’s loans. The fact that it’s too much of a pain in the ass to get a building permit is not a good justification for making it easier to poison children’s brains with mercury. Now obviously all these rules are incredibly annoying. I am really glad, personally, that I don’t need to take any time or effort to comply with the Environmental Protection Agency’s new mercury emissions rules. But at the same time, it ought to be a pain in the ass to put extra mercury into the air. We don’t want too much mercury! We don’t want too much bank leverage!

Business licensing is different. “This city has too many restaurants to choose from” is not a real public policy problem—it’s only a problem for incumbent restaurateurs who don’t want to face competition. But in other fields of endeavor—telecommunications, say—the absence of regulations can lead to an uncompetitive outcome. Partisan politics is pretty simple, since there are only two parties to choose from. But the underlying structure of reality is quite complicated, and it’s worth your time to try to understand the issues.

12th Grade: Is it Better to be Loved or Feared?


We continued with the Peloponnesian War this week.

What happens to a war without precise, achievable objectives?  Might we expect it to teeter back and forth, with varying actions and motives as time goes by?  And how might this strategic instability impact Athens politically? Can its government remain stable if they fight a war rife with murky waters?

Perhaps because the war lacked clear goals, it began to take on a life of its own.  Without a precise, achievable objective we might surmise that both sides got imaginative with their tactics.  So we see the Athenians utilize light infantry, and the Spartans take drastic measures at sea with Athenian allies.  As the tactics changed, so too did the targets, and eventually civilians inevitably got drawn into the conflict.

Quite possibly the changing tactics changed the war aims for both sides. What began apparently as a war over a fairly innocent political dispute become a war of annihilation.    If neither side would ever back down, the war could end in only one way.

On Thursday we had a good discussion that grew out of out of our look at the rebellion against Athens in Mytilene.  After crushing the uprising, the Athenians debated what to do with the city.  Should they,

  • Kill/enslave all of them — have it cease to exist.  Mytilene was one of the privileged members of the Athenian alliance.  They had their own navy, for example.  Their rebellion threatened Athens’s whole system.  If the ones you treat nicely rebel, what about the others?  Furthermore, is this how they repay our kindness to them?

We cannot risk, argued Cleon, that this rebellion spreads.  Mytilene controls the island of Lesbos, and most of the rest of the island stayed loyal to us.  We must protect the innocent on the rest of the island by making sure we get all of the guilty.

  • Kill only the leaders, argued Diodotus.  Our prudence and clemency will pay dividends down the road.  If we face another rebellion, after killing all in Mytilene, the ‘innocent’ will have choice but to join it, since if the rebellion failed, they would killed anyway.  This will more, not less resistance to us in the future.

I think the divergent points of view boiled down to the question of the role of power and a good image in achieving security.  Is power or a good reputation a better guarantee of security?  In our discussion most everyone agreed that both play a role, but many differed on the priority each element should take.

In the end, the Athenians voted for Diodotus’s point of view.  But they still executed about 1000 people without any legal proceeding whatever.  We may cheer that the Athenians chose the “right” path, before we realize that they never considered other potentially more humane options, or at least more “legal” options.  The temptation to abandon such things when fighting for your life would be tremendous.  But it was an ominous sign of things to come.  In the midst of our current conflict in the “War on Terror,” we too have to decide to what degree our system of checks and balances is non-negotiable, and if we can let certain things slide, when and under what conditions?

The title of this update refers to a famous chapter in Machiavelli’s The Prince.  Machiavelli asks the question, and while he agrees that ideally a ruler can be both loved and feared, he understands that this can rarely happen.  If you have to choose between the two, one should choose fear.  Love is simply to fickle.

In many ways, I think Athens would have agreed.


Dave Mathwin