June 4, 2010

When I talk about the interaction of government, lobbyists, cartels, and the unfree market, I’m not talking of conspiracy. All of these things happen as the result of the basic rule of Austrian economics; people act to satisfy their wants.

All of the problems of government intervention in the market result from this same basic rule. If people find that the easiest way to fill their wants is through the political route, they will use it.

Politicians find that the easiest way to get elected is to spend big money on TV Ads. The easiest way for a politician to get big money is to accept campaign contributions from corporations, unions, or lobbyists. Then they feel obliged to enable legislation favoring their contributors. That may sound corrupt and unprincipled, but it is legal, so it happens.

The basic root of the problem is simply the fact that government is power. Power does corrupt, and it attracts parasites. And government without power can hardly be called government.

In the USA in the 18th century, for whatever reasons, many people chose to be doctors. There were plenty of them, at least in the more settled areas away from the western frontiers. They were in competition with each other so they weren’t getting rich. Many of them, however, were not willing to accept the effect of supply & demand on their income.

They formed the American Medical Association (AMA) and set about lobbying congress for the powers they needed to limit the supply of doctors. Eventually they got the law passed and proceeded to close down most of the medical teaching schools and set rules and quotas for those remaining. In time they managed to reduce the number of doctors and greatly increase their incomes.

This was not a conspiracy cooked up in secret. It was a very open, legal creation, by government, of a cartel, or union, or guild, whatever you like to call it. The same thing occurs in any system involving licensing, be it lawyers or taxi drivers.

The involvement in government regulatory agencies of the industries the agencies are supposed to regulate is also the simple consequence of people seeking to fill their wants. They find that the political power of these agencies is the simplest path to create a cartel, get preferential treatment, and exclude competition.

It is so likely that any regulatory agency will be captured by those to be regulated that there should be no attempts to create such agencies. We would all be better served by government if all such existing agencies were shut down. Cartels, unions, and guilds benefit producers at the expense of consumers. Government regulators, instead of preventing this, end up enabling it.


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