Too Much Regulation Stifles an Economy

Dave,

In your mind, what is the real definition of a “free market?”

Bernard

Bernard,

I know economists could probably throw a bunch of convoluted definitions and explanations at you, but I like to keep things simple. A free market is when buyers and sellers are free to do business. If you want to buy a shirt and there’s no obstacle to you buying it other than the cash you have in hand, and the seller is allowed to sell that shirt with no barriers on their end, that’s a free market. Markets that are less than free are regulated markets. And the more regulation there is, the more the market slows down.

Now, don’t get me wrong. A certain amount of regulation is needed in a civilized society. The problem is that we as a people have become so driven by our current nanny-state mentality that we think with enough government regulation, no one will ever experience any unfairness or pain again. But when you move in that direction, you stifle the economy. And when you stifle the economy, the market can’t move at normal velocity. The speed of doing business slows down. And that kills jobs.

Free markets tend to be more efficient. They create things like supply and demand curves, and those work better when there’s not a ton of regulation slowing the speed of people doing business. Some folks argue that regulation is needed because people are immoral and will take advantage of others if they’re not regulated. That’s a reasonable argument. The problem is this: Like so many other things that are initially reasonable, when taken to extremes they become unreasonable—or even downright stupid.

The truth is that when you study the history of economics, markets and capitalism, you’ll find that people who are dishonest are eventually punished by the marketplace. There are always a few exceptions, of course, but the idea that you can put enough regulations in place so everyone is always safe and protected from dishonest people and practices is ridiculous.

Regardless, the notion that all businesses are cruel, selfish entities and that businesspeople only care about their own personal gain is absurd. Over an extended period of time, the most successful businesses are those that don’t function exclusively in their own self-interest. And at the end of the day, the customer’s interest and the business owner’s interest are one and the same—which is what makes the free market work in the first place.

- Dave