September 7, 2000

Strakon Lights Up

Regulatory blowout

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I'm reminded of the powerful old joke retold by Woody Allen in the movie "Annie Hall." A man tells his fellow diner: "The food at this restaurant is terrible!" And his companion replies, "Yeah, and such small portions!" Government regulation failed to prevent the Firestone tire disaster, and in response statists are already chanting in chorus for more regulation.

The Central Government's traffic-safety agency fell down on the job. We're hearing that its budget has been cut by a third since 1980, that it was in disarray administratively before its present chief took office three weeks ago, and that it ignored a 1998 e-mail from State Farm Insurance warning of problems with Firestone tires going as far back as 1992. Also, according to a congressman from Akron, the regulations on steel-belted radial tires were written decades ago when bias-ply tires still dominated the market. He didn't explain what difference that might make, but I suppose his apologia for the industry was meant to suggest that the regs should have been updated to take account of evidence emerging from protracted, long-term use of such tires under changing highway conditions and on newly introduced vehicles such as SUVs.

My response is to call for ripping up the entire government safety apparatus root and branch, and throwing it on the nearest bonfire of the vanities.


One poor fellow who lost a loved one in a tire-related crash no doubt spoke for many when he charged that avaricious capitalists concealed the defects in Firestone tires in hopes of maximizing their profits. But even if we assume that all capitalists would act that way if they thought they could get away with it, the notion is utterly contextless. If capitalists, acting to maximize profits, can foist defective products on their customers and do it in the face of market discipline, what then can bureaucrats, including safety bureaucrats, get away with in the absence of market discipline?

The idea makes sense only if we assume that bureaucrats, who live by initiating force, have an overriding countervailing incentive to act like saints, and capitalists, who live at the whim of customers who can desert them at any time, have an overriding countervailing incentive to act like devils. But that assumption itself makes no sense.

What sort of discipline do regulatory agencies work under? Agencies are pulled this way and that by the desire of some of their employees to ruthlessly enforce anti-capitalist Red Guard ideology, the desire of some to satisfy Dark Suit clients, the desire of others to build personal empires, and the desire of still others to live quiet lives, hiding behind their desks and collecting their secure salaries. The people who constitute private companies have their own personal agendas, too, but unlike bureaucrats they are subject to market discipline. Bureaucrats are subject only to political discipline. In my view that discipline is generally exerted to steer the Red Guards' destructive energy to serve the Dark Suits' anti-competitive interests. If, in the case of a safety agency, that sort of discipline ever actually serves customers' demand for accurate safety information, it's purely an accidental by-product.


Government safety regulations systematically hamper, obscure, and distort the flow of information about safety, in the same way that wage and price controls disrupt the flow of information that constitutes the free-market price system. If an economy is seen as an epistemological system, and the information it synthesizes from countless millions of pieces of data and disseminates to market participants is equivalent to concepts, distortion of the process by government intervention produces the economic equivalent of hallucination and insanity.

Note that State Farm, the nation's largest auto insurer, provided relevant information to the traffic-safety agency and was ignored. Once rebuffed by the ultimate, official, monopolistic determiner and definer of safety, State Farm's incentives to turn elsewhere were minimized. The insurance industry is at least as heavily regulated as the auto industry; in that climate, how much more boat-rocking could we expect from State Farm? If the company publicly accused Firestone and Ford of endangering customer safety, it might find itself defending a costly libel action — for, after all, the government in all its omniscience had certified Firestone and Ford products as safe, at least by default.

Liability lawyers defending regulated companies never hesitate to tell the jury that their client satisfied all the government's safety requirements. They wouldn't bother making that argument unless it sometimes impressed a jury, that is, sometimes saved their defendants' bacon in tort cases. I can name two highly regulated industries off hand — the airlines and the nuclear-power industry — that have even enjoyed explicit statutory limitations on liability. Ironically, under our current anti-justice system, it is industries persecuted for selling non-defective products that see their claims of satisfying regulators systematically ignored — the firearms and tobacco industries.


In the absence of an official definer of safety pretending omniscience and busily disseminating hallucinations, a genuine competitive market for safety information would flourish. Just as we can see the little shoots and sprigs of free-market education in the parochial and private schools that manage to survive in the suffocating shadow of government, so we can see the shoots and sprigs of a safety-information market in today's consumer magazines and certifications by the Underwriters Laboratories. Stripped of their illusions and delusions about being protected by government, market participants would create an intense demand for real information on product safety. Among those beneficently disillusioned participants would be the consumer media and Underwriters Laboratories themselves. As a result, companies such as Firestone would tend to lose their own illusions — before a worldwide disaster threatened their very existence.

Millions of people buying and selling in the marketplace — and not a handful of bureaucrats — would evaluate safety information and freely act on it in accordance with their preferences. Each would decide, for instance, whether to spend thousands of dollars remaking his car and house into a plastic cocoon so his children could never experience a bump or bruise, or to invest that money for his children's education.

The continual evaluation of information by people acting in the market would, of course, determine what kind of information was produced and in what quantity. Today, because of the unpredictable discipline of politics, bureaucrats have emitted thousands of pages of data, some of it true and some of it false, on the danger of smoking but nothing on the danger of Firestone tires. It puts me in mind of how the Soviets produced marble-clad subway stations, super-tanks, and space stations — and sausages that even the cat wouldn't eat. Not to mention Chernobyl. In the production, dissemination, and evaluation of information as in all other social phenomena, Liberty is the mother, not the daughter, of order.


P.S. All economic analysis aside, isn't it just odd to expect to get genuine information on safety, of all things, from an institution that, both at home and abroad, periodically commits mass murder? Ω

September 7, 2000

Published in 2000 by WTM Enterprises.

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