Category — Mixed Economy
[This exploration into the theory of regulation was inspired by the role of the mixed economy in the rise and fall of Enron. The analysis applies to many current issues, such as the negative environmental effects of the supply/demand for used batteries, the lead story in today's New York Times.]
Political economists have long recognized the challenge of getting regulation right in a mixed economy.
“A scheme of state interference for the attainment of some social or economic benefit,” stated Hubert Smith back in 1887, “will in general succeed or fail according as it is able or unable to cause a change in the nature, habits, and disposition of those whom it affects.”
A century later, regulatory economist Sanford Ikeda reached a like conclusion:
Interventionism is really a process of entrepreneurial adjustments in both the private and public sectors, where these adjustments tend to be both unanticipated and undesirable (from the viewpoint of the interveners) owing to radical ignorance, complexity, and dispersed information.
Some historians have noted the same. The Progressive Era’s “stunningly rapid bureaucratic triumph,” Richard McCormick wrote in the American Historical Review, resulted in “open-ended and unpredictable” state and federal regulation. “Consequences are often unexpected, outcomes surprising when matched against origins.”
‘Simple Rules for a Complex World’
Even business ethicists dismissive of simple-rules (free-market) capitalism have acknowledged the limits of government fiat. For example, Duane Windsor states: “It is infeasible fully to regulate a complex economy.” The alternative, in this view, is that Social Capitalist Man must be classroom-coached before entering the thicket of the mixed economy, where an estimated 300,000 potential federal offenses lie in waiting. [Read more →]
December 9, 2011 1 Comment