20 March 2011

Market Freedom is Binary

I say that market freedom is binary, because either there is market interference or there is not.  As such, I favor an all-or-nothing approach when it comes to deregulation.  (There are some exceptions to this, but they are relatively rare.  Also, I approach deregulation by industry, not in the aggregate.)

The reason for this approach stems from the nature of interference itself.  If, for example, the government decides to regulate, say, the airline industry, there will be some negative consequences to this, either in the form of higher risk, higher prices, lower supply, and so on.  The effects of this distortion are generally considered to be bad, and so a vocal group of consumers petition the government to correct this imbalance.

Naturally, correcting the ill effects of interference leads to more intervention, not less.  The consequences of each subsequent intervention lead to more problems and distortions, and require further interference.  In my view, then, partial deregulation only trades one distortion for another.   Sometimes this means that businesses make a higher profit than would otherwise have been the case; sometimes their profit is lower.  Sometimes consumer prices rise, sometimes they fall.  None of these consequences can be compared to the free market, for there is simply no way to tell what results the free market would bring about.

As such, it is simply best to completely deregulate the market all at once.  Elsewise, you’re simply trading one distortion for another.

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