David R. Henderson  

Goodman on Firms as a Vehicle for Regulation

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Imprisoning Immigrants... The Presumptive Puritan...
So how many Californians have been arrested for eating the wrong kind of egg? Zero. Not even one? Not one. Actually, the law doesn't take effect until January, but even then egg eaters will have nothing to fear. The reason: the law doesn't apply to people who eat eggs. It only applies to people who sell eggs.

When you stop to think about it, that's not unusual. Almost all government restrictions on our freedom are indirect. They are imposed on us by way of some business. In fact, laws that directly restrict the freedom of the individual are rare and almost always controversial.

For example, some municipalities restrict your ability to possess a gun. Federal law requires you to pay Social Security taxes if you employ a nanny. Federal and state laws restrict your ability to consume recreational drugs. Until recently, some states made gay sex illegal. In each case these restrictions were (or are) hotly debated.

But the vast majority of government encroachments on your freedom of action come about through laws that constrain an employer or a seller - without much controversy. For the most part, government doesn't regulate people; it regulates businesses. Even the collection of the income tax and the Social Security (FICA) tax is almost all done through employers. (And if employers didn't act as tax collectors, it is doubtful that federal revenue would be even close to what it now is.)


This is from John C. Goodman, "Reason for Big Government: The Firm." He's put his finger on something important. Of course, as I'm sure he would be the first to admit, that doesn't mean you can get small government by banning firms. To ban firms you would need--a government. And that government would have to be pretty powerful.

Goodman's point, though, reflects the era we're in. There was a time in this country when businessmen felt confident enough that they could defy the federal government. If there was such a thing as a turning point--I think it's more gradual than that--this would be a candidate. (I don't have permission to post this photo, so go to the link.)


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CATEGORIES: Regulation




COMMENTS (9 to date)
Christophe Biocca writes:

It seems I'll never run out of "FDR did what?" moments, no matter how long I live.

The Buckyballs case on one hand, and Uber on the other, show that while it's no longer possible to fight the Feds (without losing everything), it is still possible to disobey and win against state and local governments (as long as you have deep pockets).

Hana writes:

I always thought of Wickard v. Filburn as the turning point for heavy handed government. Any and every action is now consumed by the Commerce Clause.

I offer two theories to explain why, as Goodman says, "government doesn’t regulate people; it regulates businesses".

Theory 1
Businesses exist for the sake of making profit, and such "profit" seems to carry negative connotation for the mainstream. So the rhetorical playing field is not level. Politicians easily appear to be heroes when they regulate business firms.

Theory 2
Constitutions of modern Western democracies give the power of voting to people but not to businesses. Try to imagine a democracy in which only businesses could vote. What kinds of laws would come out of that legislature?

But now on third thought I think those two theories are the same.

JKB writes:

From 'The Big Change: America Transforms Itself, 1900-1950' by Frederick Allen Lewis

Is the big and successful corporation its own master, then? Not quite.

To begin with, it is severely circumscribed by the government. as Professor Sumner H. Slichter has said, one of the basic changes which have taken place in America during the last fifty years [1900-1950] is "the transformation of the economy from one of free enterprise to one of government guided enterprise....The new economy," says Dr. Slichter, "operates on the principle that fundamental decisions on who has what incomes, what is produced, and at what prices it s sold are determined by public policies." The government interferes with the course of prices by putting a floor under some, a ceiling over others; it regulates in numerous ways how goods may be advertised and sold, what businesses a corporation may be allowed to buy into, and how employees may be paid; in some states with Fair Employment laws it even has a say about who may be hired. "When a piece of business comes up,' writes Ed Tyng, "the first question is not likely to be 'Should we do it?' but 'Can we do it, under existing rules and regulations?' "He is writing about banking, but what he says hold good for many another business. Furthermore, in the collection of corporate income taxes, withholding taxes, social security taxes, and other levies the government imposes upon the corporation an intricate series of bookkeeping tasks which in some cases may be as onerous as those it must undertake on its own behalf. Thus the choices of enterprise are both hedged in and complicated by government.

[Highlight mine]

The only thing that has changed has been the increasing imposition on of the "government guidance" upon ever smaller enterprises.

Yaakov writes:

I believe most businesses have no reason to be against regulation. While it adds to their burden, it adds even more to the burden on their will be competitors.

Floccina writes:

That is why I like to educate people about tax incidence. I like to tell local renters that they do indeed pay property taxes. We need to get people to understand who consumes less and who consumes more due to some Government policy whether it be a tax like matching FICA or a policy like minimum wage or something like the PPACA.

Elliot writes:

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ThomasH writes:

This is a lot made of administrative convenience. IF there were a good reason to restrict the consumption of abortions and it were the case that there are more women wanting abortions than facilities providing them, it would be absurd to administer this from the abortion demand side. Granted, if a restriction is misguided, then it would be nice if it were more obviously inconvenience, but lots of things would be nice.

The problem with the absurd new regulations on abortion providers in some states [a government regulation (and a deviously concealed "tax" must offend Caplan’s “scrupulous honesty" presumption no end) that that conservatives and Libertarians seldom worry much about] is that they impose more costs on women wanting to get an abortion than benefits, not that they are imposed on the providers instead of on the women directly.

Vivian Darkbloom writes:

"But the vast majority of government encroachments on your freedom of action come about through laws that constrain an employer or a seller - without much controversy. For the most part, government doesn't regulate people; it regulates businesses."

That's all true; however, it misses one important point (alluded to, I think, by Thomas H). Regulating from the top down is not only administratively convenient, it's good management! There is often a nefarious element to this type of regulation (just ask Jon Gruber), but it would make no sense in the example given by Goodman for the state of California to try to regulate the chicken rights provision via the consumer.

Government regulation via corporations (particularly large corporations such as banks) is very similar to the modern management hierarchy. CEO's give edicts to top management and those top managers are expected to enforce them down the chain (and take all the negative feedback). Government has become very adept at deputizing corporations to do their enforcement work so that corporations are almost an extension of government. This deputization goes one step further than regulating the business itself--it requires business to in turn regulate the populace. Take FATCA. Big banks are expected to police and report on account holders or face huge penalties. The cost of such actions is borne indirectly by consumers (no need to tax and spend), banks get the first-line complaints from irate customers, etc. And, if corporations try to get out from such rules (or taxes) indirectly relieving individual citizens from regulation, those big corporations also get the blame.

The IRS also imposes huge penalties (negligence, substantial underpayment, etc) on tax advisors and preparers. Most of the work to enforce the Internal Revenue Code isn't done by IRS agents--it is done by those indirectly deputized by this penalty system.

Another example is the internet. Big internet providers and technology companies are the latest enlistments to this deputization process.

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