Obama keeps slamming McCain with the allegation that he favors deregulation…a charge McCain seems frightened to answer. Shying away from it makes it appear that Obama has the high ground, that deregulation is a bad thing. Why not tell the truth about it and embrace the role? Deregulation is the right thing to do in this day of extreme over-regulation! Over-regulation, not the lack of it, is at the crux of the current economic crisis. 

Deregulation would free up competition and in the process solve a lot of the major economic problems that trouble the voters today: drive down consumer prices, reduce profit margins of “big corporations,” slash fat-cat compensation, and increase productivity, just for starters.

The first game of the tournament is played. Team A wins handily. Then the coach of Team B goes to the official after the game, and points out a problem: “We have a good three-point shooter, but nobody as tall as their 7’6” center and they are killing us on the inside. It’s not fair; and besides, the fans are not getting their money’s worth, since we were beaten so badly. Let’s change the rules to say baskets in the paint are worth one point instead of two.” 

In any reasonable world, this would be a ridiculous request. But, say the official agrees with the coach, and changes the rules. Why? Maybe the official agrees with the importance of fans enjoying the game. Or maybe because the coach and the official are old friends, or their wives are in the same club. Maybe the coach donated a lot of money to the official’s wife’s favorite charity. Whatever the reason, the rule is changed and the next game goes much better; it is closer, and Team B wins a squeaker. 

Team A is furious, of course, and their coach approaches the official this time. “With the new rule, you made the game unfair. We don’t have any good three-point shooters; we relied all year on our big man inside, and his baskets are only worth one point now. Since you made the change in their favor, to be fair you need to reduce the outside shots to be worth only two points instead of three.”   The official hesitates. “I’ll buy your dinner this evening, and my wife will contribute $10,000 to your retirement fund,” adds the coach.  With that, the official agrees, and another rule changes.

As expected, the outcome of the next game is changed in favor of Team A. And so it goes through the tournament, back and forth, the rules seesaw, changing the outcome from game to game. 

The official has become something other than an independent observer enforcing the rules: the official has become a participant, with the power to dictate winners and losers. Who would consider this a fair tournament? 

The only way to have a fair tournament would be to keep the rules the same througout. If Team B wanted to win, they would have to find an answer to Team A’s big man; recruit a giant of their own. But how easy is that, compared to a conversation with the official? Getting a rule change that favors your team is much easier than just making the adjustments on your team to win within the rules.

This is the way government regulations work; government has become a player instead of merely an official. Businesses (as well as community organizations…this does not just happen in the for-profit world!) look at the difficulty of competing within the rules versus the possibility of getting a rule changed in their favor. Unfortunately, they have found the latter to be the easier way to get ahead. Every new regulation has an effect of giving someone an advantage; thus we see endless pages of new regulations and rules coming out of Washington.

Companies and their lobbyists bring requests to the officials: change this regulation so more minorities can buy houses, or that one so that fewer people will be turned down when they apply for insurance, or another saying all cars have to have airbags, or to mandate that signs cannot be so close to the road, or requiring that at least 50% of the parts are made in America. Each regulation has a supposed purpose that is in the public interest (sort of like the original Team B pretense of getting a rule changed because the fans were bored with the lopsided game) but will also have an actual effect of giving and advantage to one of the competitors. 

Take the last one as an example: imagine (hypothetically, of course) that most cars have about 65% of their parts made in other countries where the cost of labor is lower, but “Pluto Autos” company has been slower at outsourcing and still has 70% of its parts made in America. As a result, its costs are higher even though the quality of their car is only equal to that of their competitors; those costs have to be passed through to the consumer as a higher-priced but equal-value car. They find that it is getting harder to sell these vehicles. So, Pluto hires lobbyists to ask Congress for a new law…on the premise that it is better for America to have all companies import no more than 50% of the parts. Who could be against that? It means more jobs in America and less of our money going overseas, right? Congress passes the law in a surge of patriotic zeal (or maybe because the lobbyists are big campaign contributors?).

What just happened?   Like Team B that had no tall players, Pluto got the officials to change the rules in the middle of the game. Pluto gave itself a competitive edge in the marketplace. All the other companies are going to have to find American sources for more of their parts, and wiggle out of contracts they have with their overseas suppliers. Pluto’s competitors’ costs are going to jump, surpassing even Pluto’s, giving Pluto at least a temporary advantage. What happens to the price of all cars? Prices go up, meaning every consumer has to pay more to get a car, has less opportunity to buy the cheaper car of equal value.

The basic rules of the business game are this: don’t lie; abide by your agreements; don’t injure other people or their property. That’s it. That’s all we need.

If a particular company has such a large market share that there is no way anyone else can compete, then we break up that monopoly. The Justice Department has done that a few times, as we know. Beyond that, let people buy if they want or go elsewhere if they prefer. 

In a free market governed by only the basic rules of the business game, no person or company can make too much money, because if they can provide a good or service that buyers want and they charge too fat a price, someone else will see the opportunity, get into the business and undercut them, taking away their profits. The first company will have to lower its price and thus its profit margin, or else it will go out of business altogether.

As Thomas Sowell has so aptly put it, we are silly to decry the entrepreneur who gets into business “just to make money” because in a free market, there is only one way to make money, and it is quite honorable: make or provide something that other people want, and offer it to them at a price they are willing to pay. All free market business boils down to a voluntary exchange of value: I have something (a good or service) that you want, you have something (money) that I want, and we only exchange the two if we each freely agree on the equality of the transfer. If I hold out for too high a price, you will look to others to buy from; if you cannot find others who offer the same thing for a better price, you still have freedom to simply not buy at all. If you so decide, I still didn’t get what I wanted (your money) and I am stuck with the good or service that I wanted to sell. Therefore, I lower my price until it reaches the point where you are willing to enter into the exchange.

All of business, when governed by only the basic rules of the business game, is a matter of creative people finding goods or services they can offer to other people that those other people will value. If a buyer values it as much as the creative person asks, there is an exchange: dollars for the good or service. 

Deregulation gets the officials out of the game and forces the players to simply do their best. Be the most efficient at converting raw materials into finished product, because if you don’t, your competitor will. Provide the most valuable advice for the fee, or someone else will provide more for less and you’ll lose your customers. Regulations are like an official changing the rules to affect the outcome of the game, making it too easy for one team to win (and in business that means reap excessive profits or deficient quality).

If they are worthy of the title—and compared to Obama-Biden they would be—McCain and Palin should wear their deregulation credentials on their sleaves! 

(Comments are welcome at cwf@ussonet.net )