Government as Referee: Who Regulates the Regulators?
A recent opinion-page editorial by a Ray Hankamer Jr. in the Houston Chronicle, Government as Referee for Society, espoused big government to promote basic protection in a modern society.
Such is the romantic view of government; the Good Government and We the People view of democracy where the body politic is all of us (not us versus them). But the real world is different from this all-to-common textbook view.
“Leave the market alone and it will self-regulate just fine.” “Stop taxing the people and let them spend their own money instead of letting the government take it and waste it on ‘meddlesome bureaucrats and business-stifling regulators.’” This is the viewpoint of the tea party and many Republicans. But wait a minute: How would such a philosophy really work if implemented?
He then invokes the sports metaphor to conclude that we need federal regulators in an alphabet soup of agencies to do the necessary and sometimes dirty work to achieve fairness:
They are the public’s referees and umpires, such as the Securities and Exchange Commission, the Environmental Protection Agency and the Fish and Game Commission. They are there to enforce the rules for the good of all the people.
But when they are reined in, the public suffers. Remember Enron, WorldCom, Bernie Madoff, Stanford Financial, Lehman Brothers and all the other examples of the market being left alone to self-regulate?
One caveat, Hankhamer adds: “Overzealous referees and umpires can stifle an athletic contest, and overzealous regulators can do the same for an economy. But the suggestion that we can play the game with no supervision is preposterous.”
In response to Hankamer’s use of the tragedy of the commons as a pervasive reason for government intervention, I opined in a letter published by the Houston Chronicle:
Regarding “Government as a referee for society” (Page B8, Oct. 2), we can all applaud Ray Hankamer‘s advocacy of a society based on the rules of law.
Although he allows that overzealous regulators can stifle an economy, he attacks the straw man position that “we can play the game with no supervision.”
However, he seems surprisingly uninformed that most of his “tragedy of the commons” and market failure examples have been solved by property rights (fences), private accreditation organizations and the law of torts. He should also realize that the self-regulating features of the market, which he unfairly demeans, and not government regulators are what brought the downfall of Enron, Lehman Brothers and other malefactors. Investors were far more prescient than SEC bureaucrats.
His closing platitudes call for a more balanced (in his opinion) media coverage of political events. Being a referee (sergeant-at-arms) in the Texas Legislature has evidently inspired him to want to make more rules for the rest of us.
Rob Bradley (of MasterResource) also published a rebuttal in the letters section of the Chronicle, reprinted below:
Ray Hankamer Jr.’s essay misleadingly presents a case for activist government. We do need the rule of law to police against fraud and force against person and property. But government intervention in the name of the “general good” often has unintended consequences, and government for the people is often government for the special interests against the people.
Our democracy-in-deficit is about government going far beyond what is intellectually defensible. And as far as the examples Hankamer uses (Enron, Madoff, Stanford, etc.), where were the thousands of regulators enabled by tens of thousands of pages of regulation? Might there have been unanticipated consequences where simple rules against fraud could have been more effective?
There is not only market failure but also government failure. Government should not intervene if its own shortcomings approximate or exceed the market imperfection.
Such is the bottom line of real-world political economy.