Capitalism and government regulation

Moonlight Graham · October 6, 2012

What really bothers me are people, generally on the right economically, who are ideologically dedicated to deregulation of business/corporations/markets. They say this will improve profits and economic prosperity. Well, yes it can. However, the following is what I have constructed as basically a law of capitalism:

Capitalism is amoral, as it is driven by ONE concern: profit. Unregulated, business concerns for maximum profit will often trump any concerns for public safety, the environment, workers safety/well-being, prudent function of the markets etc. That is why government regulations exist.

Any regulation should be measured based upon its negative impact on business profit weighed against systemic and social concerns like those outlined above that may result without the regulation in place. Those, like Mitt Romney, Reagan, Thatcher, and Ayn Rand, who are dedicated to an ideology of reducing government regulation are dangerous as they can often not be pragmatic in their approach to regulations, as they are more concerned with profits and economic prosperity (not in themselves a bad thing obviously) while so often ignoring systemic/market and social concerns. This is one reason why Canada's banking system and housing markets fared so well during the recent recession compared to the US and most other OECD countries.

Unlike the thoughts of many, markets are not perfect. Laissez-faire capitalism is not perfect, as capitalism by its nature creates a race to the bottom where businesses compete for maximum profits (which can include disregard for public safety, the environment, workers safety/well-being, prudent function of the markets etc.) and those businesses that have any social concerns (which often reduces profit) simply cannot compete against businesses with lesser social concern and are thus more profitable.

As Alexander Hamilton said in my sig quote: "Why has government been instituted at all? Because the passions of men will not conform to the dictates of reason and justice, without constraint".

TimG · October 6, 2012

Regulation done right is good for business because it levels the playing field and reduces business liability if something goes wrong.

The problem comes from bad regulations that increase costs or create barriers to entry without any real benefit.

The trick is having a sane discussion about what regulations have a real benefit when it is much easier for politicians to take a stance on one side or the other.

Edited October 6, 2012 by TimG

Moonlight Graham · October 6, 2012

The problem comes from bad regulations that increase costs or create barriers to entry without any real benefit.

The trick is having a sane discussion about what regulations have a real benefit when it is much easier for politicians to take a stance on one side or the other.

I agree on both points.

Your last point, yes that is the trick. A politician of ie: a left-leaning party could have vested interests in making for more social responsibility forced on businesses than is practical because their voting and lobbying base may not be business but middle/lower classes, workers/unions, social activists, young people. Meanwhile a conservative politician may have more lobbying efforts, campaign finance, and overall vested interest in the business sphere so they will support deregulation simply on those lines, not what makes sense.

Jiblethead · October 6, 2012

what ever happened to ethics?

Pliny · October 7, 2012

What really bothers me are people, generally on the right economically, who are ideologically dedicated to deregulation of business/corporations/markets. They say this will improve profits and economic prosperity. Well, yes it can. However, the following is what I have constructed as basically a law of capitalism:

Capitalism is amoral, as it is driven by ONE concern: profit. Unregulated, business concerns for maximum profit will often trump any concerns for public safety, the environment, workers safety/well-being, prudent function of the markets etc. That is why government regulations exist.

This is the stigma socialists like to attach to capitalism.

In truth Capitalism is not amoral. It is based upon the mutual benefit of trade and trade would not occur in the absence of mutual benefit. Profit is a concern most definitely. It means the life or death of a business. However, it must satisfy a demand of the consumer and that is its number one concern without which profits cannot be realized. Thus the consumer regulates business much more than legislated government regulation.

Michael Hardner · October 7, 2012

Where is the morality ?

TimG · October 7, 2012

Where is the morality?

Morality evolved a means to facilitate cooperation between humans by creating a basis for strangers to trust each other. This cooperation enhanced the survival of both parties. Morality exists at the corporate level too for the same reason. Edited October 7, 2012 by TimG

Michael Hardner · October 7, 2012

So morality shares some traits with trading, and there is some morality to trading. Is that enough, really, to say trade is moral or not amoral ?

TimG · October 7, 2012

So morality shares some traits with trading, and there is some morality to trading. Is that enough, really, to say trade is moral or not amoral?

That depends on whether you think morality is more than a code of behavior designed to facilitate cooperation between humans.

Moonlight Graham · October 7, 2012

This is the stigma socialists like to attach to capitalism.

In truth Capitalism is not amoral. It is based upon the mutual benefit of trade and trade would not occur in the absence of mutual benefit. Profit is a concern most definitely. It means the life or death of a business. However, it must satisfy a demand of the consumer and that is its number one concern without which profits cannot be realized. Thus the consumer regulates business much more than legislated government regulation.

I agree the consumer regulates business more than government. But consumers often care about their own ends (cheap prices, the goods they want) over worker safety/right, environmental concerns etc. (if they even know about them with any company). Profit means the mutual benefit of business and consumer is occurring, so capitalism is concerned primarily with profit.

eyeball · October 7, 2012

That depends on whether you think morality is more than a code of behavior designed to facilitate cooperation between humans.

It's much more than that, morality gives us the ability to tell the difference between what's right and wrong, what's just and in-just. Without it we might as well just go back to clubbing each other over the head for the things we need.

TimG · October 7, 2012

It's much more than that, morality gives us the ability to tell the difference between what's right and wrong

But what makes something "right" and something "wrong"?

eyeball · October 7, 2012

But what makes something "right" and something "wrong"?

Your sense of what you'd feel if someone did to you what you're doing to them.

It's in the eye of the beholder.

TimG · October 7, 2012

Your sense of what you'd feel if someone did to you what you're doing to them.

So morality is a purely relative concept? It would be moral to kill your daughter because she dishonored you because you believe that is what should be done to you if the situation was reversed?

eyeball · October 7, 2012

So morality is a purely relative concept?

It appears so. Do unto others as you'd have them do unto you. Most people know this by the time they graduate kindergarten.

It would be moral to kill your daughter because she dishonored you because you believe that is what should be done to you if the situation was reversed?

No. That's ridiculous.

Bonam · October 7, 2012

Regulation done right is good for business because it levels the playing field and reduces business liability if something goes wrong.

The problem comes from bad regulations that increase costs or create barriers to entry without any real benefit.

The trick is having a sane discussion about what regulations have a real benefit when it is much easier for politicians to take a stance on one side or the other.

Yes, telling bad regulation from good is the key. A regulation specifying the maximum leverage for banks in clear and specific terms and thus capping risk is, in all likelihood, a good regulation. But then you have things like ITAR, for example, which restrict a business so much that it stifles it, often to the point of non-existence. For example, the company I work for recently applied and got approved for a research grant to develop some technology for the DoD. However, it was specified that to get the money and do the research, ITAR regulations would apply. Well, the grant was about $200k for the initial research, but we estimated the cost of complying with ITAR regulations (just in terms of paperwork, management time, lawyer time, security procedures, etc) would be at least $500k over the term of the grant. So the answer? Don't bother.

Sadly, the specifics of which regulations are helpful and which stifle the economy is something that politicians rarely debate. Instead they speak in broad terms like "deregulation" that are essentially meaningless.

Edited October 7, 2012 by Bonam

Michael Hardner · October 7, 2012

I think morality is necessarily subjective. As to whether anyone who follows a moral code is moral, I think it's debatable. Psychopaths who don't want to be detected could be said to be moral by that definition. When we describe a 'moral person' are we intending to include psychopaths who follow moral codes in this way ?

I ask you.

dre · October 7, 2012

Yes, telling bad regulation from good is the key. A regulation specifying the maximum leverage for banks in clear and specific terms and thus capping risk is, in all likelihood, a good regulation. But then you have things like ITAR, for example, which restrict a business so much that it stifles it, often to the point of non-existence. For example, the company I work for recently applied and got approved for a research grant to develop some technology for the DoD. However, it was specified that to get the money and do the research, ITAR regulations would apply. Well, the grant was about $200k for the initial research, but we estimated the cost of complying with ITAR regulations (just in terms of paperwork, management time, lawyer time, security procedures, etc) would be at least $500k over the term of the grant. So the answer? Don't bother.

Sadly, the specifics of which regulations are helpful and which stifle the economy is something that politicians rarely debate. Instead they speak in broad terms like "deregulation" that are essentially meaningless.

It also doesnt help that thousands of new laws are bundled into huge acts, that cover a wide range of different topics, then voted on by people that dont even read them.

dre · October 7, 2012

Thus the consumer regulates business much more than legislated government regulation.

THe consumer regulates which products are successful in the market place but thats about it. There was plenty of demand for asbestos insulation for example. It worked just fine to keep you warm. Consumers were thrilled to buy leaded gasoline as well because it made their cars run better.

Since cost is where consumers have the biggest impact they actually encourage companies to behave worse. The whole idea of consumer regulation is a complete and total fantasy.

TimG · October 7, 2012

When we describe a 'moral person' are we intending to include psychopaths who follow moral codes in this way?

Depends. Is morality the thought or the deed? If it is the deed then psychopath who follows the generally accepted moral code for selfish reasons is a "moral person".

Moonlight Graham · October 7, 2012

Yes, telling bad regulation from good is the key. A regulation specifying the maximum leverage for banks in clear and specific terms and thus capping risk is, in all likelihood, a good regulation. But then you have things like ITAR, for example, which restrict a business so much that it stifles it, often to the point of non-existence. For example, the company I work for recently applied and got approved for a research grant to develop some technology for the DoD. However, it was specified that to get the money and do the research, ITAR regulations would apply. Well, the grant was about $200k for the initial research, but we estimated the cost of complying with ITAR regulations (just in terms of paperwork, management time, lawyer time, security procedures, etc) would be at least $500k over the term of the grant. So the answer? Don't bother.

Maybe there's good reason for ITAR regulations to exist though? What is the security/safety risk of not regulating international defense contracts/trade as they do?

Bonam · October 7, 2012

Oh, absolutely. There are good intentions, valid reasons, behind most regulation. But the quality of the regulation comes down to implementation. One can accomplish something in a streamlined, efficient, way, or one can try to accomplish something and end up with a giant burdensome mess that no one understands and fewer still want to deal with. ITAR is an example of the latter.

TimG · October 7, 2012

One of the problems with our society today is it does not handle failure well. They expect regulation to capture 100% of problems in advance 100% of time and when a problem occurs the assumption is always more regulation is needed.

When a failure occurs what we need to decide is if it is really worth trying to stop that failure again in the future. There are many times where the cost of fixing a problem after the fact is cheaper than trying to prevent it advance. But good luck getting any politician to say that because most people cannot understand cost benefit analyses.

CPCFTW · October 8, 2012

What really bothers me are people, generally on the right economically, who are ideologically dedicated to deregulation of business/corporations/markets. They say this will improve profits and economic prosperity. Well, yes it can. However, the following is what I have constructed as basically a law of capitalism:

Capitalism is amoral, as it is driven by ONE concern: profit. Unregulated, business concerns for maximum profit will often trump any concerns for public safety, the environment, workers safety/well-being, prudent function of the markets etc. That is why government regulations exist.

If the public has those concerns then profit will not be maximized for businesses which do not address those concerns.

The problem is that the public's main concern is also monetary.

Only the truly affluent care enough about the environment to incur significant costs for it, yet we expect business, which responds to the aggregate actions of thousands of consumers, to care for us?

You're typing on a computer with microchips manufactured and flown to you from the other side of the world. Would it be more "moral" to manufacture those computers here with wind and geothermal energy, using unionized employees, and charge $10,000 for computers so that only the wealthy could afford them?

Profit is moral because the aggregate consumer considers it moral. When the aggregate consumer has the means to buy that $10,000 computer manufactured locally with the best safety standards and most expensive green energies, then your morals will be reflected by the actions of business. Until then, all you can do is force people to accept your morals through taxation/regulation, just like Mao, Hitler, and Stalin forced people to accept their morals.

Edited October 8, 2012 by CPCFTW

dre · October 8, 2012

If the public has those concerns then profit will not be maximized for businesses which do not address those concerns.

The problem is that the public's main concern is also monetary.

Only the truly affluent care enough about the environment to incur significant costs for it, yet we expect business, which responds to the aggregate actions of thousands of consumers, to care for us?

You're typing on a computer with microchips manufactured and flown to you from the other side of the world. Would it be more "moral" to manufacture those computers here with wind and geothermal energy, using unionized employees, and charge $10,000 for computers so that only the wealthy could afford them?

Profit is moral because the aggregate consumer considers it moral. When the aggregate consumer has the means to buy that $10,000 computer manufactured locally with the best safety standards and most expensive green energies, then your morals will be reflected by the actions of business. Until then, all you can do is force people to accept your morals through taxation/regulation, just like Mao, Hitler, and Stalin forced people to accept their morals.

The "aggregate consumer" doesnt know jack shit about the products they buy though. They would gladly purchase a computer made from ground up human babies if the price was right, and they were educated about the production cycle.

Thats why expecting consumer ethics to replace regulation is such an utter fantasy. It doesnt work, never has worked, and never will work.