Anything government can do, the free market can do better, part II

Over at QandO, McQ blogged about New York City forcing a tobacco shop owner to remove its $9000 coffee machine, because the shop doesn't have a food license.

Skorj left a comment, "I think it’s totally reasonable that the government can impose safety regulations, including requiring food handlers’ certs, whenever food would pass between you and a stranger – even in a soup kitchen."

No. Not even that much, as I pointed out in my reply: "Skorj, if you don’t like how someone prepares your food, then you have the freedom not to go there. However, someone else may not mind, so don’t infringe on their freedom to do business with whom they want."

Regular commenters Steverino and looker, for all their talk against big government, don't see that they still don't mind feeding the beast. Being state-worshippers, they advocate standards: government-enforced standards. As I said a few nights ago, you don't have to be Paul Krugman to worship the state. You need only believe the falsehood that we need government to accomplish certain (good) things. Their argument is that the private sector can't enforce standards, which in and of itself is true. The private sector has no power to force a business to close. Private citizens cannot legitimately make a shopkeeper cease business, or imprison and/or fine him if he does anyway.

But their fallacy is that since the private sector cannot do something, then government must. This is not true in the least. They also don't understand my point about not forcing standards on anyone. The private sector's powers are to let competition and consumer choice work unhindered so that standards can come into existence on their own. It would mostly be a matter of trust: sellers would have earned reputations, good or bad. Also, within the private sector, it's perfectly possible for a trusted entity be relied on for judging others, even though it doesn't have the force of government. McQ kindly reminded us of Underwriters Laboratories, and I pointed out McAfee's website certification.

My key rebuttals:

Most establishments are clean enough, but not because of law. It’s because our wealth, courtesy of capitalism, allows us to be clean without much cost, and it’s to a restaurant’s best interest to maintain a reputation — or at least not develop a bad one. Most everyone in New York heard about that KFC with the rat problems. The government didn’t need to shut them down, because they’d have shut down from a lack of business.

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Cleanliness is a good thing. A government that tries to enforce “cleanliness” via arbitrarily standards is not a good thing. But I already knew you worship at the feet of the state. You might talk a good line on this and that, but in the end you rely on what law provides you.

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It’s [government] not enforcing standards. It’s the myth that the standards can be enforced all the time. So people grow reliant, and they presume that any place they walk into will be ok. More often than not, they’ll be fine. It’s that occasional occurrence, however, that proves the state’s inability to protect us.

The problem with your reliance on government-set standards is a form of the so-called “market of lemons.” Akerlof’s basic argument applies here in the sense that government enforces — or pretends to enforce — a minimum standard of quality. You’re now expected to assume that any given food handler is clean, however, you don’t really know that. Government has said, “Any used car sold must be in certified good mechanical condition,” but buyers can no longer properly judge what’s worthwhile and what is not. They can’t tell if a seller is pulling a fast one, unless they inspect for themselves.

Look at the outbreaks the FDA failed to prevent. Do you understand now why they occurred? Because people gave trust that was not truly earned, and some died because of it. “The government wouldn’t allow this to be sold if it weren’t safe.” Instead of checking how and where a toy was made, parents bought all the toys with lead-containing paint. The plain fact is that government cannot enforce the “standards” you cling to, which creates (in food, transporation and a host of other things) a false sense of security.

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In a free market, sellers of goods and services would be too scared to give anything but their best. They wouldn’t dare let anything slide. They would compete not on the basis of meeting some standard set arbitrarily by a government official, but on the basis of reputation: which one is setting the highest standard (service, trustworthiness, etc.) becomes the standard by which everyone else is measured.

My employer is one of the most respected firms in the financial industry, and we exceed every “standard” the government sets for transparency and accountability. That’s because we want to compete so effectively that we’ll be considered THE standard.

But as I said, when you have government supposedly enforcing standards, it can never do so as effectively as the free market. Government’s “standards” are set by politics and ignorance, by the bureaucrats who make arbitrary decisions and/or don’t know the industry. The “standards” are met without too much difficulty by many participants (this truism is proven by modern history), thus making “standard” a very low bar to clear. It might put enough fear into food handlers, but fear of government punishment is never as great as fear of losing your customers. If you really were in the restaurant industry, you’d know that a place needs a helluva track record to be shut down. Otherwise, well, fines may be issued but are rarely publicized more than obscurely.

The Old West is popularly imagined as a violent society, but it was actually a very polite one. If you shoed someone’s horse poorly, no one would trust you anymore unless you redeemed your name, or unless you charged so little that a customer knew he would get what he was paying for. Even then, you might get shot by someone’s friends if your customer got thrown after his horse lost a shoe. There were no “standards” enforced, so every seller of goods and services was extremely careful to do a good job.

There was a lot of dancing around the fundamental issue of freedom, which I brought us back to:

How is it YOUR right, or anyone else’s, to prevent that transaction? You’re being nothing more than a busy-body, trying to save the buyer from himself. It’s his right to be stupid: you can try to persuade him from something that harms himself and no one else, but you have no right to force him.

Looker asked, "who has the authority to tell you to cease and desist in a completely government free market." It's easy to figure that one out. My reply:

The individual has the authority, either by not returning or not going there in the first place.

As an individual, you have the power to shut down any business — to the extent of your own business with it, and that should be the extent of the “authority.” Do you see that what you and Steverino are advocating is that one person or a few individuals can act on behalf of “society,” forcing a business to shut down just because some people don’t think it’s good enough? Neither of you have yet addressed the fundamental question: by what right can you to force people to do business only by your standards and not their own? If they agree to a peaceful, private transaction that harms no one else, what is it to you?

You argue, in essence, that people might not know a place is dirty. What, though, if someone fully knows what he’s buying and wants it anyway? Whether he’s ignorant or deliberate, you can try to persuade him, but do not force him. If he refuses, then what is it to you? It’s not harming you or anyone else. Let him go his own way and don’t lose any sleep.

There are people who can’t sell particular kinds of meat, or even butcher it for their own use, because of “health codes.” Unfortunately it’s been argued on the basis of “religious freedom,” instead of on the basis of freedom, period.

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Without health codes, people would scrutinize establishments more carefully. They’d rely on newspaper reviews and Zagat ratings, perhaps late night news segments about the latest dirty restaurant.

Do you see the paradox that Michael and I have been trying to tell you? When government enforces standards, it in fact does not make anyone implicitly trustworthy, but rather makes it dubious that any given entity is truthfully adhering to the standards. Government can never be effective in making sure everyone follows the rules. There are health code violators no matter what government tries, just like it can never rid the road of bad (let alone drunk) drivers.

Looker also asked, "Can we really go back, especially in the case where many people can be, for want of a better term, poisoned, to Caveat Emptor?" I replied affirmatively:

We not only can, but we must. It’s the only way for a free people to live. And it won’t be some Stone Age world; you’re just not giving capitalists enough credit. It would be an opportunity for the smart ones to bill themselves as the cleanest operations.

I’ve seen signs in Third World fast food joints touting their “Clean restrooms,” and they were. In fact, they were in better condition than most in the States. We take such things in the U.S. for granted, not because of laws, but because our greater wealth already made possible what laws later mandated.

Now, “caveat emptor” is half inaccurate because it implies that sellers may suffer no consequences. Buyers should beware, but as I’ve been pointing out, a free market has solutions for people who harm others. If you sell me a pie that you advertised as “cherry” but it contains small stones, then regardless of what “warrant of merchantibility” laws are on the books, I regard it as implicit that the pie won’t break my teeth.

I will again quote Bastiat:

Do those worshippers of government believe that free persons will cease to act? Does it follow that if we receive no energy from the law, we shall receive no energy at all? Does it follow that if the law is restricted to the function of protecting the free use of our faculties, we will be unable to use our faculties? Suppose that the law does not force us to follow certain forms of religion, or systems of association, or methods of education, or regulations of labor, or regulations of trade, or plans for charity; does it then follow that we shall eagerly plunge into atheism, hermitary, ignorance, misery, and greed? If we are free, does it follow that we shall no longer recognize the power and goodness of God? Does it follow that we shall then cease to associate with each other, to help each other, to love and succor our unfortunate brothers, to study the secrets of nature, and to strive to improve ourselves to the best of our abilities?