Lemons out of Lemonade

Next weekend is Memorial Day – the symbolic start to summer: time for lazy days, baseball and lemonade stands. Last summer the tradition of kids making and selling lemonade on the corner met with modern day reality when the King County (Seattle, WA) health inspectors shut down a 7-year old girl’s booth.

Twenty years ago (March 1991) the FCC investigated a claim that Microsoft was abusing its monopoly status with its operating system by giving away additional products for free. The claim was found to have no merit. A few months later the Department of Justice opened its own investigation. A trial, an appeal and ten years later the DOJ and Microsoft settled. The company was prevented from bundling its Browser with its operating system or any of its other products for ten years. The settlement agreement expired on May 18. Without the shackles it’s unlikely that Microsoft will return to its innovative past. It almost seems quaint to think that by giving something away for free would constitute antitrust issues.

Google last week set aside $500 million for a potential Department of Justice investigation and the company is facing additional antitrust issues from several states. What will happen to this once mighty company when the regulators are done with it? Then it'll be Facebook's turn.  Capitalism used to allow industry determine out winners and losers.  Now it's regulators.

Regulation controls behavior by rules and regulations. Sometimes this happens through self-regulation, but usually it’s from governmental decree. This has been true since Biblical times, so nothing’s new. What’s different is the cost and scope.

The cost of regulation is huge. The Small Business Association reported last week that federal regulations (not including state regulations) cost $1.752 trillion in 2008. Passed onto consumers, that represents $15,586 per consumer. Regulatory costs equal 11.9% of GDP (almost twice the burden of the personal income tax).

• According to the Office of the Federal Register, in 1998, the Code of Federal Regulations (CFR), the official listing of all regulations in effect, contained a total of 134,723 pages in 201 volumes that claimed 19 feet of shelf space.
• There have been 38,700 new regulations since.
• President Obama’s Healthcare and the Financial Reform Act by Dodd-Frank will add thousands more pages.

I’m not anti-regulation. Having guidelines about food safety, for example, seems to me a reasonable thing to have. Having the FDA determine what foods people eat doesn’t.

Deregulation has gotten a bum rap. Most industries are never de-regulated – where no regulations exist. They are re-regulated with different rules. The issue is enforcement of the rules. There are plenty of regulations in place for many industries, enforcing them seems to be the challenge.

Somebody walks into the local bank and fills out a withdrawal slip for $100. They only have $50 in their account. The teller approves the transaction. The computer alerts the teller there’s a problem. The supervisor comes over and overrides the computer alert and hands the customer $100. The solution to this issue is not to pass a law preventing people from taking out $100 but rather to address the management issue of enforcing the rules already in place that people can’t take out more money than they have in their account.

The lack of personal responsibility has resulted in excessive regulation. In the example the individual should know that they only have $50 in the bank and therefore should only ask for $50. Failing that, the teller and supervisor also carry responsibility – to themselves and the rules that govern their bank that only allow people to take out what they have in their account.

Nearly every area of our lives are regulated. This has happened because when an issue or problem occurs the knee-jerk response seems to be to create a new rule, law or restriction rather than addressing or confronting the issue head on. It’s a great way for a politician to show that they’re in touch, in action and part of the solution.

Rather than assuming that personal responsibility is a burden to be suffered through, personal responsibility is liberating. The nanny state that the last generation of leaders has bequeathed us threatens the core liberties that the founders granted.

Individual liberty is a strength that overcomes the barriers of oppression. It’s an idea that makes lemonade out of the lemons of regulation.