Monday, May 18, 2009

Two from Coyote raise subtle libertarian questions about government policy and its implications

First, the one who howls describes the current pending legislation to prevent banks from capriciously changing the interest rates charged on existing credit card balances, and then he goes on to make a point as politically incorrect as it is critical to understanding how the economy actually functions:

There is legislation pending in Congress to restrict the ability of lenders (e.g. credit card issuers) from changing rates on existing debt. They ask if it is fair for someone who took on a debt thinking it would be at 15% to suddenly find it is at 25%. But how are tax increases any different. I make 10-20 year investments in my company, and the expected tax rate is a hugely important assumption in whether it makes any sense for me to put my capital in a particular venture. How is a large increase in taxes on returns from my past investments any different than changing the interest rate on an existing debt?

Then Coyote discusses the fact that huge new regulatory skeins ostensibly designed to promote public safety are also (apparently unintentionally) designed to prevent start-ups from competing with existing mega-corporations:

You hear this all the time from proponents of certain regulations — “even _____ corporation supports it.” GE supports global warming regulation. Large health care companies support heath care regulation. The list goes on forever. That is because regulation always aids the large established companies over smaller companies and future upstart competitors. Larger companies have the scale to spread compliance investments over larger sales volumes, and the political muscle to lobby Congress to tilt regulation in their favor (e.g. current cap-and-trade lobbying in Congress). Regulation creates a barrier to entry for potential new competitors as well.

I saw one of the implications of this kind of mechanism in action last weekend at a local used bookstore. Because retailers are now being held responsible for the inclusion of certain elements like plastics or metals in any item they sell, and because small retailers have no way to check such items, the bookstore has simply had to stop accepting children's books in trade that are more than three years old. I asked the proprietor about this, and she told me it would eventually put her out of the children's book part of her business.

Let the buyer beware has now been replaced with let the buyer be cuddled.

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