A Threat to the Foundation of the Regulatory State

Posted: Nov 11, 2014 10:32 AM

Markets, Americans are told, are imperfect. That is why we need a $4 trillion federal government to protect us.

Without the Food and Drug Administration, we would be subject to rotten and unsanitary food, or poisonous and ineffective drugs.

Without the National Transportation Safety Board, our nation’s cars would be little more than high-speed deathtraps.

And without the Federal Communications Commission, we’d be unable to communicate by radio, television, or Internet.

Without Big Government to correct market failures, liberals tell us, the country would be an anarchic mess.

And it is true—market failures are real. Buyers and sellers rarely have perfect information about the goods and services they are transacting (e.g. few patients have medical training). Some economic actors do not bear the full costs of their actions (e.g. factories that pollute communities). And there are some public goods that do need protecting (e.g. if everyone was broadcasting at the same frequency no one could listen to radio transmissions).

But is Big Government really the solution?

Given property rights protections by the courts, couldn’t Americans voluntarily coordinate and come up with market solutions to these problems without a coercive federal government behemoth?

As Townhall.com managing editor Kevin Glass documents (see Uber Republicans), debates just like this are playing out at the local level across the United States. And in some rare good news for conservatives, more and more Americans are siding with the free market and voluntary coordination over coercive Big Government.

The frontline in these battles are currently over companies like Uber, Airbnb, and EatWith, which are each challenging the local regulatory frameworks for the taxi, hotel, and restaurant industries respectively.

In each of these cases, incumbent businesses are crying foul over how these new Internet startups are using smartphones and software to provide consumers valuable services outside of the government’s watchful regulatory eye.

How does an Uber user know if their driver is competent? How does an Airbnb user know if the home they are staying is clean? And how does an EatWith user know if the meal they eat is safe?

Under the old system, government guaranteed the answers to these questions. The cab drivers are competent because the local taxi commission monitors them. Hotels and restaurants are safe and clean because the government inspects them.

But in the sharing economy, the members of each community monitor each other. Uber drivers are rated by passengers and vice versa. Same with Airbnb, where guests rate homeowners and homeowners rate guests.

The market failure in each of these cases, an information asymmetry, is overcome not by Big Government, but by human ingenuity and voluntary cooperation. When markets fail, the answer is more markets, not more government.

And that lesson is not lost on the Americans who use these services, who also just happen to be a segment of the population that is usually dismissive of the Republican Party: young urban Americans. The more these businesses succeed, the more the conservative worldview spreads.

To be sure, no one will cast a vote for any Republicans in 2014 just because they love Uber. But when Americans use these services, and they see how incumbent businesses use Big Government to try and kill these startups, the seed that markets, not government, is a better solution to most problems has been planted.

Also in this issue, be sure to check out former-Townhall Magazine editor Elisabeth Meinecke’s report on the Left’s War on Football (see The No Fun Left), as well as Townhall Magazine managing editor Leah Barkoukis’ brief history of the Islamic State (see The Rise of the Islamic State), and Townhall.com web editor Cortney O’Brien’s look at rising anti-semitism (see An Old Hatred Returns). •