Regulations are nearly always introduced with the best intentions.
In financial services, they aim to stop unscrupulous brokers and banks from ripping off the public through bad practices. Manufacturers are banned from making products which are dangerous to children, the environment, or which might fail through shoddy workmanship. However, state intervention in commercial matters is based on shaky grounds, consistent with denial of the role and workings of markets, and an overriding desire to interfere.
This contrasts with a true understanding of why free markets work, and the control the consumer exercises over prices and choice, subordinating them to his subjective decisions. Consequently, regulation is based on an unreasoned belief that the individual needs state intervention to ensure standards are maintained, and that bad practices will be eliminated. The incorrect assumption is that free markets encourage unscrupulous manufacturers and service providers to defraud the consumer, when in fact, reputation becomes the paramount relationship in trade.
Because private sector regulation tends towards monopoly practices, the state naturally sees itself as the independent arbiter to ensure fair play. But the state, having initially imposed regulations, finds it very difficult to stop there, with political pressures always to modify and intensify bureaucratic control. Furthermore, unintended consequences of earlier regulations are never corrected by abolishing them. Instead, more layers of regulatory control are introduced in an attempt to address ensuing problems. We therefore drift into greater and greater regulation, without being aware of the true economic cost.
Anyone who favours regulation needs to explain away Germany’s post-war success. Her economy had been destroyed, firstly by the Nazi war machine, and then by Allied bombing. We easily forget the state of ruin the country was in, with people in the towns and cities actually starving in the post-war aftermath.
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