Thread: Who needs regulations?

Originally Posted by Bruno

India is a fine example of a democratic, modern country where there are very few regulations.

There was a documentary on tv about people working in the fabric industry. People often only have the choice between starving to death along with their family, or working in the tannery (or other but similar environment). They literally wade through pools of Chromium, hauling buckets of chromium on a yoke, from one place to another. Not suprisingly, most of those people grow tumors and spectacular rashes on their legs.

That's what you get when there are no regulations and people are caught having to choose between short term or long term death, all so you can buy your nike shoes for a reasonable price while still allowing the fabric companies to make ludicrous profits.

We know how those people are treated, and we still buy those things. We don't vote with our pocketbook because as a society, we don't care about the Indians. Or rather, we do vote with out pocketbook: we vote for cheap over ethical.

And we do that every second of the day... its called being rational.

Originally Posted by earcutter

And we do that every second of the day... its called being rational.

Well I don't know if you would call it rational in a sense to to ignore the conditions under which fellow humans have to work to provide cheap consumer goods. Maybe pragmatic would be more like it as in they are used to working under those conditions so that is normal for them. Yes, we do it everyday, but that still does not make it ethical or right.

Bob

Apathy is the major problem America faces today. We are apathetic in our voting and we are apathetic to our purchases. Many people would pay a little more for a product they knew to be less harmful to create, but we are lazy to learning where these differences are. In the store it is easy to see price and impossible to see process.

There is a similar story to the foods we eat. It is easy to see "corn" and think all corn is made the same... You can't look at a label and see where the corn came. Take out regulations and you wouldn't even know corn was in the product. It will always be a delicate balancing act to regulate properly without over-stepping.

Originally Posted by BobH

Well I don't know if you would call it rational in a sense to to ignore the conditions under which fellow humans have to work to provide cheap consumer goods. Maybe pragmatic would be more like it as in they are used to working under those conditions so that is normal for them. Yes, we do it everyday, but that still does not make it ethical or right.

Bob

Hey Bob - Rational is an economic term. In this case I throw it out there as a way of saying that people will look for the best price they can - it's rational. The cheaper the price, in essence, the more food you can put on the table for your family. And we all want more for our family's...

Sure buying an product that is more expensive could be considered even more "rational" if that product (all things being equal) was better for the environment or didn't use child labour say... if you take the word rational at its face. But it does mean you'll have less for you and yours. It's kind of like taxes - no one wants to pay them, but we do in order to ensure or freedoms and infrastructure.

Anyway the point I was trying to make is that Bruno is right. Every day we vote with the things we buy. Generally speaking we buy those thing that are cheaper if for no other reason that we can have enough money left over to buy even more things. Believe it or not - that's rational.

Now the kicker is that just about every economic model (short of academia) uses the principle that people will act rationally. Hence, the trap we find ourselves in and why regulation is soooo needed. Corporations know that you and I are just as "greedy as they are" - it's rational! But is it greed? Probably but lets also cut ourselves some slack - if you thought about every purchase you made you wouldn't be able to leave the house to make a living lol!!

Corporations are tasked with the responsibility to generate positive cash flows. We as individuals are tasked with making our little piece of this world as comfortable as we can. Somewhere in the middle - regulators are tasked with making sure we don't kill ourselves doing it.

"Take out regulations and you wouldn't even know corn was in the product."

This makes the assumption that consumers are stupid, have no standards, and will buy anything regardless. I don't believe that for a second. On the other hand, government regulation often carries with it unintended consequences. For example, insurance companies recently predicted premium increases of 100 - 400% as a result of the still not fully implemented ACA that was supposedly intended to make medical insurance MORE affordable. There are many examples where the government stepped in to cure a problem with regulation, and ended up creating more problems. A study done not long ago indicated that The Great Depression was prolonged by approximately seven (7) years due to New Deal policies. Organized crime during the mid twentieth century was funded from black market sales due to government prohibition of alcohol. Todays war on drugs is doing essentially the same. Government CAFE standards mean lighter, smaller cars full of plastic and less safe during an accident.

Originally Posted by honedright

"Take out regulations and you wouldn't even know corn was in the product."

This makes the assumption that consumers are stupid, have no standards, and will buy anything regardless. I don't believe that for a second. On the other hand, government regulation often carries with it unintended consequences. For example, insurance companies recently predicted premium increases of 100 - 400% as a result of the still not fully implemented ACA that was supposedly intended to make medical insurance MORE affordable. There are many examples where the government stepped in to cure a problem with regulation, and ended up creating more problems. A study done not long ago indicated that The Great Depression was prolonged by approximately seven (7) years due to New Deal policies. Organized crime during the mid twentieth century was funded from black market sales due to government prohibition of alcohol. Todays war on drugs is doing essentially the same. Government CAFE standards mean lighter, smaller cars full of plastic and less safe during an accident.

You got that all wrong. The great depression lasted so long because the new deal policies weren't put in place fast enough! Moreover - that's not a regulation. Were the SEC (which was created after the great depression and does regulate) to have been in place and effective before the 20's - there is a strong argument that the great depression would not have occurred.

You are confusing economic stimulus with regulation there.

Originally Posted by honedright

"Take out regulations and you wouldn't even know corn was in the product."

This makes the assumption that consumers are stupid, have no standards, and will buy anything regardless. I don't believe that for a second. On the other hand, government regulation often carries with it unintended consequences. For example, insurance companies recently predicted premium increases of 100 - 400% as a result of the still not fully implemented ACA that was supposedly intended to make medical insurance MORE affordable. There are many examples where the government stepped in to cure a problem with regulation, and ended up creating more problems. A study done not long ago indicated that The Great Depression was prolonged by approximately seven (7) years due to New Deal policies. Organized crime during the mid twentieth century was funded from black market sales due to government prohibition of alcohol. Todays war on drugs is doing essentially the same. Government CAFE standards mean lighter, smaller cars full of plastic and less safe during an accident.

That's not regulation either - that's policy.

David

Yea, I get your use of the word rational used within the framework of economics. I could not agree more with that. Consumers sole purpose is to consume and the cheaper things are to buy the more we consume and that goes far beyond any need. We still could consume less by paying more and still not deny our families anything necessary and essential to a good life. Hell walk in closets were never a necessity till we needed a space to put all those cheap clothes we buy and hardly wear. Growing up having a garage to put your one car in was a bit of a luxury but we are hard done by if we done have a two or three car garage to put multiple vehicles in. Sometimes more is just more and not better. Anyway, nobody in a consumer society is any less guilty of that than others so we are all in the same boat.

Bob

Originally Posted by earcutter

You got that all wrong. The great depression lasted so long because the new deal policies weren't put in place fast enough! Moreover - that's not a regulation. Were the SEC (which was created after the great depression and does regulate) to have been in place and effective before the 20's - there is a strong argument that the great depression would not have occurred.

You are confusing economic stimulus with regulation there.

OUR ECONOMIC PAST
What Ended the Great Depression?
FEBRUARY 24, 2010 by BURTON FOLSOM

What finally ended the Great Depression? That question may be the most important in economic history. If we can answer it, we can better grasp what perpetuates economic stagnation and what cures it.

The Great Depression was the worst economic crisis in U.S. history. From 1931 to 1940 unemployment was always in double digits. In April 1939, almost ten years after the crisis began, more than one in five Americans still could not find work.

On the surface World War II seems to mark the end of the Great Depression. During the war more than 12 million Americans were sent into the military, and a similar number toiled in defense-related jobs. Those war jobs seemingly took care of the 17 million unemployed in 1939. Most historians have therefore cited the massive spending during wartime as the event that ended the Great Depression.

Some economists—especially Robert Higgs—have wisely challenged that conclusion. Let’s be blunt. If the recipe for economic recovery is putting tens of millions of people in defense plants or military marches, then having them make or drop bombs on our enemies overseas, the value of world peace is called into question. In truth, building tanks and feeding soldiers—necessary as it was to winning the war—became a crushing financial burden. We merely traded debt for unemployment. The expense of funding World War II hiked the national debt from $49 billion in 1941 to almost $260 billion in 1945. In other words, the war had only postponed the issue of recovery.

Even President Roosevelt and his New Dealers sensed that war spending was not the ultimate solution; they feared that the Great Depression—with more unemployment than ever—would resume after Hitler and Hirohito surrendered. Yet FDR’s team was blindly wedded to the federal spending that (as I argue in New Deal or Raw Deal?) had perpetuated the Great Depression during the 1930s.

FDR had halted many of his New Deal programs during the war—and he allowed Congress to kill the WPA, the CCC, the NYA, and others—because winning the war came first. In 1944, however, as it became apparent that the Allies would prevail, he and his New Dealers prepared the country for his New Deal revival by promising a second bill of rights. Included in the President’s package of new entitlements was the right to “adequate medical care,” a “decent home,” and a “useful and remunerative job.” These rights (unlike free speech and freedom of religion) imposed obligations on other Americans to pay taxes for eyeglasses, “decent” houses, and “useful” jobs, but FDR believed his second bill of rights was an advance in thinking from what the Founders had conceived.

Roosevelt’s death in the last year of the war prevented him from unveiling his New Deal revival. But President Harry Truman was on board for most of the new reforms. In the months after the end of the war Truman gave major speeches showcasing a full employment bill—with jobs and spending to be triggered if people failed to find work in the private sector. He also endorsed a national health care program and a federal housing program.

But 1946 was very different from 1933. In 1933 large Democratic majorities in Congress and public support gave FDR his New Deal, but stagnation and unemployment persisted. By contrast, Truman had only a small Democratic majority—and no majority at all if you subtract the more conservative southern Democrats. Plus, the failure of FDR’s New Deal left fewer Americans cheering for an encore.

In short the Republicans and southern Democrats refused to give Truman his New Deal revival. Sometimes they emasculated his bills; other times they just killed them.

Senator Robert Taft of Ohio, one of the leaders of the Republican-southern Democrat coalition, explained why he voted against much of the program: “The problem now is to get production and employment. If we can get production, prices will come down by themselves to the lowest point justified by increased costs. If we hold prices at a point where no one can make a profit, there will be no expansion of existing industry and no new industry in that field.”

Robert Wason, president of the National Association of Manufacturers, simply said, “The problem of our domestic economy is the recovery of our freedom.”

Alfred Sloan, the chairman of General Motors, framed the question this way: “Is American business in the future as in the past to be conducted as a competitive system? He answered: “General Motors . . . will not participate voluntarily in what stands out crystal clear at the end of the road—a regimented economy.”

Taft, Wason, and Sloan reflected the views of most congressmen, who proceeded to squelch the New Deal revival. Instead they cut tax rates to encourage entrepreneurs to create jobs for the returning veterans.

After many years of confiscatory taxes, businessmen desperately needed incentives to expand. By 1945 the top marginal income tax rate was 94 percent on all income over $200,000. We also had a high excess-profits tax that had absorbed more than one-third of all corporate profits since 1943—and another corporate tax that reached as high as 40 percent on other profits.

In 1945 and 1946 Congress repealed the excess-profits tax, cut the corporate tax to a maximum 38 percent, and cut the top income tax rate to 86 percent. In 1948 Congress sliced the top marginal rate further, to 82 percent.

Those rates were still high, but they were the first cuts since the 1920s and sent the message that businesses could keep much of what they earned. The year 1946 was not without ups and downs in employment, occasional strikes, and rising prices. But the “regime certainty” of the 1920s had largely returned, and entrepreneurs believed they could invest again and be allowed to make money.

As Sears, Roebuck and Company Chairman Robert E. Wood observed, after the war “we were warned by private sources that a serious recession was impending. . . . I have never believed that any depression was in store for us.”

With freer markets, balanced budgets, and lower taxes, Wood was right. Unemployment was only 3.9 percent in 1946, and it remained at roughly that level during most of the next decade. The Great Depression was over.

Originally Posted by BobH

David

Yea, I get your use of the word rational used within the framework of economics. I could not agree more with that. Consumers sole purpose is to consume and the cheaper things are to buy the more we consume and that goes far beyond any need. We still could consume less by paying more and still not deny our families anything necessary and essential to a good life. Hell walk in closets were never a necessity till we needed a space to put all those cheap clothes we buy and hardly wear. Growing up having a garage to put your one car in was a bit of a luxury but we are hard done by if we done have a two or three car garage to put multiple vehicles in. Sometimes more is just more and not better. Anyway, nobody in a consumer society is any less guilty of that than others so we are all in the same boat.

Bob

Agreed! But some would say that's the point of it all...