Regulation and Dangerous Mixtures of “Free” and “Nonfree”

There are plenty of cases where a system failed and it appears to be the result of insufficient regulation (too much freedom). In a sense, this can be true. The following admission may seem odd coming from a libertarian, but it is quite true (and quite libertarian). Even though a completely free market would be best, very nonfree markets can sometimes be better than mostly free markets. In other words, it is not always the case that an increase in freedom of a market makes it healthier or better, as it depends on the starting point level of freedom. And in more other words, sometimes the order of market conditions, from worst to best, is: mixture of free and nonfree parts in a market (worst), then a very or completely nonfree market (better), then a completely free market (best). Basically, it may sometimes be very dangerous to mix freedom with nonfreedom. This is not very intuitive, but it will be explained below. Here are two examples of situations where this principle may apply:

  1. Privatizing profit while “socializing” risk and loss. This is a terrible mixture. The ability of a company to make and keep profit is generally fine (this is the freedom part). But, if such a company fails, then it is very unfair to force everyone else in the nation to pay for that failure and bail out the company by giving it taxpayers’ money (this is the nonfree part). Furthermore, it invites future failure because then the industry knows that it can make risky or poor decisions and just get bailed out again if it fails again. The industry loses incentive to make disciplined wise decisions. Now, a system with even less freedom may be better. IF we must have the system that bails out failed businesses, than it may actually be better to regulate them to force such businesses to reduce risky behavior. It may also be better to tax them at a higher rate to help offset the cost of their bailouts. After all, if the businesses can steal money from the people through taxpayer bailouts, it’s only fair that the general populace should steal back from the businesses by taxing the businesses’ profits more. In this case, a better combination may be “socializing” profit and loss, a very nonfree system. But, the very best system is if we had complete freedom, that of privatizing profit and loss. This is when businesses could make and keep their profits, but they have to take responsibility and pay with their own money if they fail. Complete freedom is the fairest option.
  2. Requiring the purchase of something by law, but without price caps on it. This is a terrible mixture. The ability of a business to freely determine the price of sale is generally fine (this is the freedom part). But, if the government forces people to buy something (this is the nonfree part), then the business can charge exhorbitant prices without fear of losing customers, because the customers are forced into the business’s hands. This is very unfair. Now a system with even less freedom may be better. IF we must have the system where government forces people to buy something, then it may actually be better if the government also capped the price by law to keep the price at a more moderate level. In this case, a better combination may be forced purchasing and forced pricing, a very nonfree system. But, the very best system is if we had complete freedom, where people could freely choose whether or not they will buy something, and the businesses can freely choose what price it shall be.

Regulation may be justified if government privilege has been granted to an industry or company. Government privilege without regulation is worse than privilege with regulation, but it is best to have a completely free market with no government privilege and no government regulation. Note, the “better” options of “very nonfree” described above also assume that the regulation doesn’t have any negative unforeseen consequences; unfortunately, there are usually unforeseen consequences.

The above general concept likely explains why some other developed countries have more affordable health care than in the U.S. Many other countries have very “nonfreedom” health care systems, heavily run and regulated by the government. That is not the best system, but it may be better than the disastrous mixture of free and nonfree parts in the U.S. health care system that has plagued U.S. citizens for decades now. However, the best health care system would be one without any government interference at all, according to a completely free market.

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