An Unregulated Parable About Regulation

Imagine that a collection of highly committed members of a Social Democrat style political party charter a cruise ship to sail around the Pacific in order to charge themselves up for the next election. The group consists of one thousand adults. Sadly, the ship suffers a catastrophic malfunction, and the group is shipwrecked on a remote and uninhabited island (well-known, however, to philosophers). Fortunately, the island has rich soil, ample potable water, and a moderate climate, and they are able to salvage the stores and equipment from the ship. Accordingly, there is every prospect that the group can survive until they are rescued.

These are all people of decency and good will, so there is no need for criminal courts, police, or jails. Given the circumstances, they also decide that there is no need to devote resources to military defense.

The party members get right to work. First they elect one hundred of their members to function as the legislature, and this body in turn elects a prime minister to serve as the chief executive, with the authority to appoint other cabinet members. The parliament immediately enacts the same sort of laws on the books in their home country, and appoints one hundred bureaucrats to write regulations adapted to their present circumstances, including rules covering food, consumer products, workplace safety, land use, social welfare programs, retirement savings, the safety and efficacy of medicines, healthcare, commercial lending, etc.

Additionally, the legislature decides that one hundred members will be employed to inspect all enterprises for compliance, and to issue citations to offenders. These disputes will be fairly adjudicated by an additional hundred administrative law judges. Finally, since this apparatus will entail substantial expense, the lawmakers appoint one hundred people to write the tax code, assess taxes, and collect them.

This arrangement leaves five hundred persons available to produce the goods and services that the community needs for survival. However, this cohort has to devote half its time to understanding and complying with the administrative regulations and tax laws. Tragically, the results are hardship, deprivation, and the eventual death of the entire community.

Now, imagine this same thought experiment, but with libertarians. They hold no elections and appoint no regulators or tax collectors. Ten members are elected to adjudicate all tort and contract claims, with fees paid by the losing party. Everyone else gets to work building shelter, growing food, making tools and clothes, etc. What people can’t make for themselves, they obtain by trade and barter. Although there are no regulations, people generally deal fairly with one another out of concern for their reputations. Those members who acquire a bad one soon discover that others are not eager to exchange with them, or to do favors for them in time of need.

Not only is there sufficient production to sustain life comfortably until rescue, but there is a surplus that people willingly gave as charity to those few people unable to fend for themselves. Everyone lives happily ever after.

I hope the moral of this story is clear. In the long run, a society can only consume what it produces. Health and safety regulations are objectionable in that they typically violate individual rights of property and contract, but they also consume enormous resources and thus hobble a society’s economic output. Not only can we live without regulations, but we will live better.