Regulation, Thy Nature is Flawed

Regulation has several inherent flaws.

1. One agency acts as legislative, judicial, and executive branch. It makes the rules, decides who is breaking them, and punishes offenders.

2. Regulation is based on the doctrine of prior restraint. Instead of retaliating by force against criminals, the government initiates the use of force against innocents–because they might commit a crime. So it criminalizes non-crimes.

3. Regulation forces businesses to prove a negative–often at great expense.

4. It ossifies the status quo. It is easy (well relatively) to get permission to do the same thing that everyone else is doing. Much harder to get permission to change how business is done.

5. It is an engraved invitation for cronies to use regulation and regulators to suppress competitors.

6. It gives the unscrupulous a place to hide. Bernie Madoff was highly regulated. Regulation didn’t stop him.

7. It prevents startups from forming in the first place (doubly so because raising capital is itself highly regulated, and startup founders don’t typically have the capital and legal sophistication to navigate the regulations).

8. Regulation makes it impossible to know in advance what is legal and what is not. This is because regulation attempts to control actions A, B, and C in an indirect way to prevent crime X. So it can make arbitrary distinctions between two essentially similar things–but one is illegal.

9. Regulation makes it illegal for you to do something that someone else can do legally.

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