Can Regulation Increase Freedom?

The Tea Party's hatred of government regulation is misplaced

By Shawn Lawrence Otto | Jun 15, 2011 | Comments (7)

If there was a central driving concept to today's Tea Party politics, Adam Smith might be it.  Do we really need laws and regulations?  Can't private industry take care of everything, and do it better and cheaper?

Adam Smith

In 1776, Adam Smith argued in The Wealth of Nations that an individual, who “intends only his own gain” was, in a shared economy, in effect “led by an invisible hand” to promote the greater public interest, since willing buyers and willing sellers will always arrive at a natural price for things, and the highest value and efficiency will be obtained. “Nor is it always the worse for the society that [the individual’s intention to do social good] was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.”

The argument was so well made that it has become an axiom of economics: just get out of the way.

But is it true?

In 1968 a little-known U.C.-Santa Barbara biologist named Garrett Hardin submitted a paper to Science that was remarkable because it offered such a sound rebuttal to Smith, whose collaborator and mentor was Benjamin Franklin's good friend David Hume, whose definiton of freedom - the power to choose - informed Franklin's thinking at the founding of the United States.

The dilemma Hardin identified, the Tragedy of the Commons, lies at the heart of the unresolved environmental challenges of the 20^th century – including climate change, ocean acidification, overfishing, biodiversity loss, habitat fragmentation, over development, pollution, exploding population, and energy use, to name a few.

Hardin asked if Smith's reasoning still held in the economics not of 1768, when the world seemed limitless, but of 1968?  Imagine a situation where village herdsmen share a common pasture, he offered.  Over time various factors – disease, war, poaching, periodic famine – keep both the herds and their herdsmen at well below the carrying capacity of the pasture.  In this situation, we could consider the pasture limitless, as was the world in Adam Smith’s time, and his economic argument would hold true. 

But then one day through increased use of good farming practices, say, social stability is reached, and these losses are minimized.  At this very point of highest social good, the logic of the commons creates a tragedy.  Each herdsman thinks, like Ayn Rand argued, “what is the utility to me of adding one more animal to my herd?”  Since the herdsman receives all the proceeds from the sale of the animal, the positive benefit is +1.  Since the herdsman pays only a tiny portion for the additional grazing in the common pasture, in terms of less grass, more weeds, erosion, etc, the negative detriment is only a small fraction of -1.

In this way, each herdsman is motivated by the only rational economic conclusion, to add an animal… and another… and another.   But what seems rational when the problem is looked at from the individual frame becomes grotesquely irrational when the frame is the collective of all the herdsmen, and indeed of their economy and society at large, whose individuals are each now faced with a situation of over-grazed pastures which can sustain only a small fraction of the number of cattle prior to the bubble.  The environment and the economy both collapse and the herdsman society faces a doubly deficit situation because they have been eating their environmental corpus.

Hardin concluded that in this circumstance, “each man is locked into a system that compels him to increase his herd without limit – in a world that is limited.  Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all.”

The argument over regulation and freedom presumes a fundamental conflict between environment and economy that paralyzes American politicians, because it assumes that there is a conflict between freedom and regulation, and that regulation is a drag on the market.  This conflict will only become more pressing over the coming decades. 

But is it true?  There is a case to be made that wisely crafted regulations increase freedom, not reduce it.  If freedom is freedom to choose, regulations that maximize that freedom provide a benefit to the individual.  There was a time when we dumped feces in our streets and water sources, but then we learned through science that this spreads cholera.  Regulations based on science keep us free from the tyranny of cholera.  There was a time when a landowner whose factory abutted a stream would have thought it ridiculous if you told him he couldn't dump toxic effluvient into the water.  A running stream cleans itself every twenty miles, was the saying.  But regulations now preserve our health - even the health of that factory owner - from the tyranny of ignorance and toxins.  There was a time in the Wild West when marauders could take your things by force, but the laws and regulations of sheriffs and private property freed you from that tyranny.

Like anything, regulation must be used in moderation or it can become tyrannical in and of itself.  But when the guiding light is maximizing freedom by preserving the highest level of the power to choose for the greatest number of individuals, that kind of regulation reduces externalities and inefficiencies in the marketplace and improves freedom for all.

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